Small and mid-sized business owners' optimism about sales, profits, and demand is at an all-time high despite economists’ prediction of a shallow recession in early 2024, according to PNC's latest semi-annual survey.

Business Owners Are Confident

Recession concerns aside, business leaders' outlook about their own companies has risen going into the fall, with 77% feeling highly optimistic compared with 49% a year ago and 60% in the spring. Almost two-thirds (65%) s♈aid they feel optimistic because they are confident in their abilities to run the business.

PNC Chief Economist Gus Faucher partly attributed the spike in ꦯoptimism among these busin♈ess owners to the resilience they demonstrated during the challenging years they have faced since the pandemic.

"Business owners who survived that demanding time are confident in their ability to run their businesses and focus on what they can control versus what they can't," he said in a statement.

Hiring Challenges Remain

While just 9% of employers are planning to increase their staffing, 35% said hiring qualified employees over the past six months has been a challenge. Business owners identified different reasons that hiring was difficult: About half said there were insufficient applicants overall, 22% said candidates lacked experience or skills, 14% said potential employees had expectations for high salaries or benefits and 6% said potential employees could not meet legal/security requirements.

Many employers are taking measures to attract and retain employees, including standardizing flexible worꦡk options, modifying benefit packages, and standardizing hiring, promotion, and compensation policies. 

One in three business owners (33%) expects to increase employee compensation, up from 24% in the spring but less than last fall (40%). Another 43% reported increased compensation requirements among their workforce. More than a third (38%) said the need for flexible hours or remote work has increased.

Costs A Top Concern

Six months ago, businesses were most concerned about supply chain issues, but now 23% are more concerned about the cost of materials, up from 9% last fall, and 14% are worried about labor costs, up from 4% last fall. The percentage of respondents concerned about supply chain disruptions dropped to 10% from 25% this time last year.

Another concern is Federal Reserve rate hikes over the past year, with 65% of business owners expecting interest rates to affect their business over the next year, including 31% who say rate increases will put pressure on prof🦋its. 

Still, 55% said they expect to increase prices in the next six months, unchanged from last spring but less than the 63% from a year ago. Prices are being raised for various reasons, with 38% citing favorable market conditions and 32% citing keeping up with rising labor costs (32% vs. 21% last spring) as the top concern. Nearly three in 10 (29%) report raising prices to keep up with rising non-labor costs.