Energy prices, recession, and credit availability are among the biggest concerns for U.S. business owners, whose pessimism is at an all-time high in the history of the PNC Economic Outlook survey.
Nearly one in three business owners (29 percent) are pessimistic about their own company's prospects during the next six months, compared to 21 percent in the spring and 10 percent in last fall's findings of this semiannual survey, introduced in 2003 by The PNC Financial Services Group, Inc.
Three out of four business owners (74 percent) say the possibility of higher energy prices will have a negative effect on their company during the next six months. The possibility of recession is second (71 percent), and the possibility of inflation is third (65 percent).
"These results support our view that the U.S. economy has entered into a recession and the economy is likely to remain weak through the middle of next year and beyond if the federal economic stabilization plan is not enacted," said Stuart Hoffman, chief economist for PNC.
Findings: Hiring Stalled, Cost Pressures, Tight Credit
The PNC Economic Outlook survey gauges the mood and sentiment among small business owners, who represent the bedrock of the American economy. Highlights of the newest findings include:
- Weaker Sales, Profits and Hiring: Fewer business owners expect sales to grow in this weak business environment. Only 43 percent (compared to 53 percent in the spring and 63 percent last fall) expect an increase in their company's sales over the next six months. Twenty-six percent expect profits will decrease in the near term, a record high for the survey. Likewise, 10 percent (same as spring) expect to reduce the number of full-time employees. Less than one out of five (17 percent) plan to hire new employees.
- Growing Cost Pressures: With higher energy prices and a weak economy, businesses are getting squeezed between the prices they pay and those they can charge customers. Nearly two-thirds (65 percent) expect an increase in suppliers' prices during the next six months. Nearly half (47 percent) plan to increase the prices they charge their customers (up from 43 percent in the spring).
- Tighter Credit Availability: Consistent with reports of credit market tightening, 25 percent, compared to 18 percent in the spring, say it is more difficult now to obtain credit. Conversely, 7 percent say it is easier to get credit now, down significantly from 14 percent in the spring.
"Enactment of the economic stabilization plan will help to stem more substantial deterioration of credit availability for small businesses as well as for larger businesses and consumers," Hoffman said. "This will help to prevent further weakening of the important contributions to job growth and overall economic activity made by small businesses."
Policy Advice: Economy, Energy
With three out of four (76 percent) business owners reporting "little to no benefit" from the federal Fiscal Stimulus Plan, there appears to be little support for a second such package by the next presidential administration and Congress. As the Nov. 4 presidential election looms, PNC asked business owners how they would advise the next president on policy matters:
- Energy Policy: One out of three (36 percent) recommend the next president pursue drilling for oil in the Arctic National Wildlife Refuge, offshore or other areas. This is followed by 23 percent who want to increase spending and incentives for alternative energy development. Fifteen percent recommend more emphasis on incentives and requirements for conservation of energy by consumers and businesses, and another 15 percent endorse greater use of nuclear power.
To manage energy costs, the majority of business owners (52 percent) have taken action, often by passing the expense onto customers among other responses. The most frequent action, cited by 25 percent, is the addition of a price hike or surcharge, e.g., shipping price increase. Other actions include: introduced or expanded flexible work arrangements (22 percent); changed delivery procedures (21 percent); put limits on services (14 percent); and changed hours of operation (12 percent).
- Economic Policy: Four out of 10 (38 percent) recommend the next president not interfere and let the Federal Reserve manage interest rates. This is followed by 17 percent who support aid to more homeowners facing foreclosure, 14 percent who endorse a second economic stimulus package, and 12 percent who favor a repeal of the 2001 and 2003 tax cuts. This survey was conducted prior to the credit market turmoil of the past month.
For complete details of the national and regional findings, visit PNC online.
The PNC Economic Outlook survey was conducted between late July and mid-August by telephone within the United States among nearly 1,000 owners or senior decision-makers of small and mid-sized businesses with annual revenues of $100,000 to $250 million. The results given in this article are based on interviews with 507 businesses nationally, while the remaining 399 interviews were conducted among businesses within the states of Maryland, New Jersey, and Pennsylvania. Sampling error for the national results is +/- 4.0 percentage points at the 95 percent confidence level.