Better, but …

Small business owners are more optimistic about sales increases but are concerned about rising inflation, according to a the latest PNC Economic Outlook survey.

The spring findings of PNC’s biannual survey, which began in 2003, show owners’ expectations for sales and profits have rebounded from unexpected setbacks last fall along with a brighter outlook for hiring full-time employees. However, 64% foresee higher non-labor costs, which will prompt owners to raise prices in an effort to preserve profit margins.

The survey was conducted Jan. 31-Mar. 4, 2011, by telephone within the United States among 1,445 owners or senior decision-makers of small and mid-sized businesses with annual revenues of $100,000 to $250 million.

"The recovery light hasn’t turned green, but it’s a lighter shade of yellow," Stuart Hoffman, chief economist for The PNC Financial Services Group, said in a statement. "The survey results support our view that the half-speed recovery that began in July 2009 is transitioning into a self-sustaining economic expansion for 2011-2012 which will not be derailed by higher energy prices, Europe’s sovereign debt problems or the disaster in Japan."

SURVEY FINDINGS
• Nearly two in five owners (37%) plan to raise their selling prices, while only 7% intend to cut prices, indicating a significant rise in pricing pressures compared to recent surveys.

• Two-thirds plan to increase prices by more than 2%, which is the upper bound of the Federal Reserve’s preferred inflation "target range."

• 24% expect to hire full-time employees, up slightly from last fall (22%) and double the spring 2009 low point (12%). Just 7% plan to reduce full-time staff, significantly lower than 2010 and the survey record of 23% in spring 2009.

• Almost half (48%) expect their sales to increase compared to 42% in the fall. Nearly four in 10 (37%) expect profits to increase compared to 31% in the fall.

• Nearly three quarters (72%) say that a sustained rise in energy prices would have a negative impact on their business.

• The sentiment about local economies is getting brighter, with 62% of owners optimistic about their local economies, compared to 57% in the fall.

• Pessimism about the national economy is significantly reduced compared to six months ago, with 58% of owners reportedly optimistic about the economy’s prospects during the next six months, compared to 41% in the fall.