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Business Owners Less Confident about Economy
PITTSBURGH – The owners of small and midsized businesses are slightly less optimistic about the health of the regional economy than they were last spring and decidedly more pessimistic about the national economy, finds a new survey by PNC Economic Outlook.
“The economy is in recovery,” PNC economist Mekael Teshome said in a phone interview Thursday. “The wrongs that got us into the [Great] Recession have been righted.” Despite this, many owners of small and midsized businesses lack the confidence that the economy won’t re-enter a recession.
“Optimism is fading,” the authors of the semi-annual survey found, with “six in 10 (57%) now pessimistic about the national economy over the next six months, up from 53% in the spring. Seven out of 10 (69%) are pessimistic about the global economy.”
In Pennsylvania and eastern Ohio, Teshome said, the economy is more vibrant than the national economy in large measure because of the Marcellus and Utica shale plays.
Regardless, in Ohio, only 38% expect to see an increase in sales over the next six months,” the survey found, “significantly lower than last spring (56%).” Where last spring 38% expected higher profits in the next six months, only 31% in the fall survey did. On the other hand, 17% in the most recent survey said they expect to add to their workforces where last spring 15% said they expected to hire.
Other findings in Ohio:
- Demand for credit falls as 11% said their business would probably or definitely seek a loan or line of credit in the next six months compared to 17% last spring. Thirty-five percent said they don’t need to borrow, up from 29%.
- Prices of houses rebound. Where only 12% said last spring they expected to see housing prices rebound in the next six months, 30% said so in the latest survey.
“The pace of U.S. economic and jobs recovery remains disappointing,” said PNC chief economist Stuart Hoffman. “Despite significant headwinds like the deepening recession in Europe and impending ‘fiscal cliff,’ the hiring plans and business outlook in this survey are just enough to keep the modest recovery persistent into 2013.”
Owners of small and midsized businesses are more likely to spend on equipment they think will make them more productive than hire more employees, Teshome said. As expansion continues, though, they will reach a point when they will have to hire if they want to grow.
Results of the survey of nearly 1,700 business owners, conducted between July 23 and Sept. 10, were released Thursday. PNC defines small and midsized businesses as those having annual sales of $100,000 to $250 million. PNC economists surveyed 506 outside the footprint of PNC Financial Services Group, parent of PNC Bank, and the balance within Pennsylvania, Ohio, West Virginia, Indiana, Michigan, Florida, Georgia, New Jersey and North Carolina. Sampling error for national results is +/-4.3% at the 95% confidence level.
Other findings of national survey:
- To the question, “Are you better off compared to 2007?” when the Great Recession began, only 26% said “yes” while 48% said they are “worse off.” Asked how have they adapted to the economic climate since, 42% have sought to become more productive or had their employees work more efficiently. A third have reduced or consolidated their operations.
- Sales, profits and hiring take a hit. Only 46% project their sales to increase over the next half-year, a figure “significantly lower” than last spring’s 58%, PNC said. Only 38% expect to see their profits rise (versus 43% last spring). “Only 23% expect to add new employees, lower than in spring (28%) but still higher than a year ago,” the authors of PNC Economic Outlook wrote.
- Capital spending falls. Only 58% said they plan to spend on new equipment or machinery in the next six months, “down significantly” from 70% last spring. Top priority is buying technology equipment.
- Demand for loans drops. Less than a fifth, 19% expect to borrow or establish a line of credit compared to 23% last spring. Thirty percent responded they have no need to borrow, “a major increase from 13% last spring.”
- Affordable Care Act keeps companies from hiring. Forty-two percent of those surveyed said the U.S. Supreme Court ruling that the Affordable Health Care Act is constitutional would hinder their ability to hire in the coming year.
- Nearly two-thirds, 63%, said the election of Mitt Romney and Republican control of Congress would lead to less regulation, regulation they feel impedes their growth and would “positively influence their hiring plans.”
PNC Economic Outlook has been conducting semi-annual surveys since 2003 to gauge business owners’ feelings on the health of and outlook on the economy. The survey conducted a year ago, the authors write, reflected the greatest pessimism since they began conducting them.
Published by The Business Journal, Youngstown, Ohio.