Small Business Owners Expecting Increased Sales

Business owners see higher non-labor costs

One out of two U.S. small business owners expect increased sales in the next six months, but non-labor costs could squeeze profits and lead to higher selling prices over the same period, according to a new PNC Economic Outlook survey.

The survey indicates 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 percent foresee higher non-labor costs, which will prompt owners to raise prices in an effort to preserve profit margins.

Nearly two in five owners (37 percent) plan to raise their selling prices, while only 7 percent 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 percent, which is the upper bound of the Federal Reserve’s preferred inflation "target range."

“The recovery light hasn’t turned green, but it’s a lighter shade of yellow," said Stuart Hoffman, chief economist for The PNC Financial Services Group.  

"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."

The survey, which gauges the mood and sentiment of small and medium sized business owners, found that one quarter (24 percent) expect to hire full-time employees, up slightly from last fall (22 percent) and double the spring 2009 low point (12 percent).  Just seven percent plan to reduce full-time staff, significantly lower than 2010 and the survey record of 23 percent in spring 2009.

Other findings from the survey include:

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

*Nearly three quarters (72 percent) 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 percent of owners optimistic about their local economies (compared to 57 percent in the fall).

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