Will Small Businesses Lead the US Economic Recovery?

According to a recent study, small company owners are becoming more optimistic about the US economy as inflation declines and worries of a recession lessen. Indeed, according to a survey conducted by PNC Financial Services Group of small and midsize business owners, economic confidence among employers in this sector is at a 22-year high.

Up to 55% of those surveyed stated they are "highly optimistic" about the state of the economy in the country this year. That represents a significant increase from 26% a year ago and 34% last fall, according to the Pittsburgh-based bank. About 80% of owners said they were optimistic about the financial future of their own companies. Just over half of the company owners questioned predicted higher profits over the following six months, while just 5% predicted lower earnings.

Based on a randomized phone poll conducted from January 2 to February 1 among 500 small and medium businesses defined by PNC as those with yearly revenue between $100,000 and $250 million, the results are presented.

Fewer small company owners feel that they must raise their own pricing in the foreseeable future when inflation declines. PNC reports that, compared to 55% last autumn, 47% of the businesses questioned stated they anticipate raising prices over the next six months. Just over one out of ten enterprises who want to raise prices say they will do it by at least 5%.

Importance of Small Enterprises in the US Economy

The U.S. depends heavily on the economic success of small enterprises; according to the Small Business Administration, 62 million Americans, or around 46% of the labor force, are employed by these companies. The majority of new jobs in the United States are created by the more than 33 million small enterprises that make up the country.

According to SBA data, small firms created 17.3 million new employment between 1995 and 2021, or approximately 63% of all positions added over that time.

The Federal Reserve raised interest rates last year in an effort to combat inflation, but the economy has since surprised many by not contracting. Driven by strong consumer spending and rapid employment creation, the gross domestic product, which measures the value of goods and services, increased at an annual pace of 3.2% in the last three months of the year and 2.5% for the entire year 2023.

The Consumer Price Index, a crucial indicator of inflation, is expected to fall to an annual rate of 2.4% this year, down from 4.1% in 2023 and 8% in 2022. The National Association for Business Economics forecast earlier this week that the GDP would increase by 2.2% in 2024.

Indeed, a variety of obstacles still plague small firms. These include being able to obtain bank financing and hiring competent personnel. A little over 28% of the companies PNC questioned stated they had trouble finding people, and many smaller companies claim that applicants don't have the necessary training or expertise.