What a difference a year makes. Small and mid-sized business owners report increasing optimism about economic conditions and the prospects for their own businesses, according to PNC’s Spring 2024 Economic Outlook survey. Nearly 80% of business owners surveyed feel optimistic about conditions for their business over the next six months -- up from 60% a year ago.

Optimism likely stems from an improving outlook for the economy as a whole as inflation pressures and recession fears appear to be easing. A majority of those surveyed (55%) said they are highly optimistic about the national economy – a dramatic increase from the 26% who felt that way in the Spring of 2023. Even more (63%) said they are highly optimistic about their local economy – more than double the reading from a year ago.

The uptick in optimism for the economy mirrors PNC’s revised outlook for 2024, which shifts away from a predicted recession to a forecast of slow growth. PNC Chief Economist Gus Faucher said he expects the Federal Reserve will begin cutting interest rates later this year as inflation continues to ease.

“Business owners continue to feel confident that good days are ahead for their business,” Faucher said. “This time around, though, the economy is seen as a supporting factor to that optimism instead of a limitation.”

Calming Inflation

Easing inflation pressures are among the biggest factors reported in the survey. Last Spring, 55% of respondents reported that they expected to raise prices in the ensuing six months – that dropped to 47% this round. Similarly, four in 10 (40%) expect prices from suppliers to increase over the next six months, that’s down from 47% last spring.

Inflation overall has been gradually easing since a mid-2022 high of 9% -- its highest level since the 1980s. By January 2024, inflation was reported at 3.1%, with continued easing projected in the months ahead. Still, inflation remains above its pre-pandemic pace and Faucher says more progress is needed before the Fed likely cuts rates later in 2024.

“We’ve come a long way from 2022, as supply chain issues driven by the pandemic have largely dissipated,” Faucher said. “But there’s also more progress that will probably be necessary before we can expect the Fed to start easing rates.”

Labor challenges easing

One such challenge has been the tight labor market, which has made hiring difficult for business leaders. Consistent with PNC’s Fall 2023 survey, respondents say the lack of overall applicants remains their primary hiring issue. Respondents cite lack of experience (22%) and high salary/benefit and flexibility requirements (9%) as other barriers.

The unemployment rate in the United States for January of 2024, was 3.7% -- below what is considered “full employment” in the U.S. economy. Faucher said he expects the shortage of available labor to ease as consumer demand softens and the effect of slower job growth across the economy becomes more visible.

Despite the trend across the broader U.S. landscape, few PNC survey respondents anticipate workforce reductions over the next six months. Only 4% report anticipating a reduction, while most (74%) expect no change to their workforce numbers and 21% project an increase in their workforce over the next half of the year.

“Employers have been under pressure despite the improving conditions because the economy has been at or near full employment for an extended period,” Faucher said. “We expect some slack in the labor market in the coming months, which will likely further ease inflation.”

Read PNC’s full 2024 Spring Economic Outlook survey of small and mid-sized business owners for additional data and commentary on topics including: profit expectations; cybersecurity concerns; and the supply chain. The Economic Outlook survey is in its 22nd year.