Business owners remain optimistic about the prospects for their businesses and the national and local economies, but have concerns about global economics. That’s according to PNC’s latest survey of small and mid-size business owners.

Nearly 80% of respondents to the PNC Economic Outlook survey reported feeling optimistic about the prospects for their business over the next six months. The number is up slightly from last fall and just below the record optimism reported in PNC’s survey from Spring 2024. Optimism stems from continued confidence in the national (50%) and local economies (56%). Those numbers are down, but only slightly, since the record levels reported last Spring. Confidence in the global economy, however, is a different story, with optimism dropping to 26% from 40% in the last two survey cycles.

“Business owners feel good about what they can influence, and that’s the future of their own business,” said PNC Chief Economist Gus Faucher. “There are many factors weighing on the outlook for the global economy that are unpredictable, though, and they could lead to challenges for small businesses in the months ahead.”

Global Challenges Ahead

Top among those concerns continues to be uncertainty around inflation. Nearly a quarter of respondents expect prices to rise by 5% or more over the next six months. That’s down sharply from the 42% who expected such an increase last fall, but still significantly elevated from the 16% of respondents reporting concern a year ago. Overall, 43% of respondents said they are extremely concerned about inflation. Additionally, nearly a third of respondents reported extreme concern about the potential impacts of Federal Reserve interest rate policy (29%).

Tariffs are a specific policy-related position that drew mixed levels of concern from business owners. Respondents from businesses that buy or sell products internationally were significantly more likely to oppose increasing U.S. tariffs on foreign products (46%) than those representing companies without an international market or supply chain (36%). Overall, the question of how the new administration and Congressional policies will impact small business owners was divided, with nearly as many owners saying they expect a positive impact (17%) as those expecting negative (20%). Most respondents, though, expect no impact at all (32%) or say it’s too early to know (26%).

“Just as inflation and Fed policy have been big question marks for business owners for many survey cycles, so too are relationships with international trading partners,” Faucher said. “Predictably, those companies with more exposure to international markets are feeling greater levels of concern.”

In addition to concerns about inflation and trade policy, business owners reported:

  • Reduced concerns about energy prices with only 18% reporting extreme concern (down from35% in the fall);
  • No change in concern over the risk of recession over the next 6 months (26%); and
  • Increased levels of extreme concern for extreme weather events (17% from 11%),cybersecurity breaches (20% from 14%), fraud (23% from 19%), and geopolitical uncertainty (14% from 10%)

Rising Inventories, Level Headcounts

With the backdrop of potential changes to trade policy, a record 42% of business owners are reporting that they expect to increase inventory over the next six months. That’s up slightly from the fall survey and significantly from the 34% who reported plans to increase inventory a year ago. More than 60% of business owners expect increased demand for their products or services, which is significantly higher than a year ago.

Despite an anticipated growth in inventories, the number of business owners who plan to hire in the next six months is stagnating. More than 80 percent of respondents said they expect the number of full-time employees at their business to remain the same. However, those who are hiring are finding it easier to find applicants. In fact, when asked about hiring challenges, only 30% of respondents noted the lack of applicants as the top challenge (down from 44% a year ago).

“Lack of experience” has replaced lack of applicants as the top factor hindering hiring, with 35% of respondents citing experience as the primary hiring challenge (up from 22% last year).

Two other hiring-related factors with significant changes since last year include:

  • Candidates not meeting legal or security requirements – 28% reported this as the top hiring challenge (up from just 13% last year); and
  • Inability to meet a candidate’s salary, benefit or flexible arrangement requirements – Just 4% reported this as the top hiring challenge (down from 13% a year ago).

“From policy changes and inventories to hiring challenges and inflation, there are a lot of unknowns that small business owners are facing in the months ahead,” Faucher said. “Despite this uncertainty, they’re feeling optimistic that good times will continue, both for their business, and the economic vitality of their communities.”