Optimism is running at historic highs in all categories evaluated by The PNC Financial Services Group in the 15-year history of the PNC Economic Outlook.
Exactly half of respondents in a semiannual telephone survey of small and medium-size business owners and executives describe their outlook for the national economy as optimistic in spring 2018, a significant increase compared to the fall 2017 survey (29 percent).
When asked to describe how they feel about the business climate during the next six months, 85 percent of all respondents selected a positive emotion : hope (39 percent), enthusiasm (37 percent) and joy (9 percent). This is a moderate increase from the fall of 2016 (pre-election) when 74 percent of respondents reported positive emotions. The number feeling fear, despair or anger remains in the single digits.
“Small businesses are a key source of economic activity and employment, and owners’ perceptions can be a good indicator of what’s to come,” said Gus Faucher, chief economist of The PNC Financial Services Group, Inc.
The overall findings from our biannual survey confirm that the U.S. economic expansion, now almost nine years old and the second-longest in U.S. history, will continue throughout 2018.
In addition, six out of 10 business leaders (61 percent) expect demand for their company’s products or services to increase in the next six months, up from 51 percent in fall 2017. While a majority (51 percent) report a good balance between the volume of business and their capacity to handle that volume, 14 percent report having more work than they can handle without adding some capacity.
Wage Watchers–Back in the Fast Lane Hiring and compensation registered some of the largest increases compared to fall 2017. Wages have remained stuck in the slow lane while the U.S. economy zipped along in the fast lane. Finally, there are signs that wage growth may be accelerating this spring: half (49 percent) of business leaders anticipate increasing their employee compensation in the next six months (compared to 37 percent in fall 2017). This is the highest rate since fall 2007 (51 percent) and good news for the American workforce. In addition, one-third (32 percent) expect to add full-time staff (25 percent in fall 2017) and 25 percent note plans to hire part-time staff, a significant bump compared to 15 percent in fall 2017.
Help (Really) Wanted Four out of 10 (40 percent) say it is harder to hire qualified employees today compared to six months ago, with the biggest challenge being lack of experience or skill. One-fifth (22 percent) of respondents attribute the lack of hiring to doing more work in other ways like automation, artificial intelligence or outsourcing, representing a significant increase compared to 14 percent in fall 2017.
“With support from tax cuts and an increase in federal spending, U.S. economic growth will accelerate in 2018 and the labor market will continue to tighten,” said Faucher.
To prevent the economy from overheating, the Federal Open Market Committee will continue to gradually raise the federal funds rate throughout 2018.
Money (That’s What I Want) Nearly seven out of 10 (69 percent) small and mid-size business leaders anticipate increased sales during the next six months, a significant increase from the fall. Two-thirds (64 percent) of respondents expect increased profits, exceeding the prior high (59 percent) set in spring 2005. Most significant is the jump in the number of business leaders who expect to charge their own customers higher prices (41 percent, up from 29 percent in fall 2017), citing increasing business and favorable market conditions as the primary reasons.
A spring in their step: small business leaders are positive about the economy.
50 percent feel optimistic about hte national economy, compared to 29% in fall 2017.
69 percent expect increased sales over the next 6 months, up from 28% in fall 2017.
85 percent chose a posiive emotion to describt their 6-month business outlook.
39 percent selected hope
37 percent selected enthusiasm
9 percent selected joy
Help Really Wanted:
40 percent of small and mid-size business owners say it's harder to find qualified employees today than it was 6 months ago.
49 percent plan to raise wages in teh next 6 months, up from 37 percent in the fall of 2017. This is the highest since fall 2007 when 51 percent planned to raise wages.
Gus Faucher is PNC’s chief economist
Key Survey Findings:
Optimism hit historic highs in all categories.
Half (of business leaders plan to increase employee compensation; highest rate since fall 2007.
Six out of 10 expect demand for their company’s products or services to increase.
Two-thirds expect increased profits, exceeding the prior high set in spring 2005.
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