More than 40 percent of small and midsize business owners are pessimistic about the economy, the most since 2012. Yet one in four plan to hire more employees during the next six months, according to a PNC Financial Services Group telephone survey. In North Carolina 42 percent are pessimistic about the US economy, and 27 percent about the local economy. Only one in eight plan additional hires in the next six months.

That’s down 16 percent from last fall and 19 percent from a year ago. About 28 percent of their employees can expect pay raises not a lot different from last fall at 29 percent were year ago at 31 percent.

When it comes to hiring North Carolina business owners say it’s getting harder to find qualified employees, with 27 percent saying it’s more difficult than it was a year ago. The biggest challenge they say is that candidates don’t have the technical skills needed.

Almost a third – 32 percent – plan to charge higher prices and 46 percent expect price hikes from their suppliers. Surprisingly considering the low inflation rate, a whopping 81 percent expect consumer prices to rise this year.

More than half – 56 percent – of North Carolina business owners say they’re not satisfied that the presidential candidates are addressing the key issues for businesses.

National Results

Nationally, one in four companies (24 percent) plan to hire additional employees during the next six months, similar to the 26 percent last fall and 22 percent a year ago.

PNC’s survey findings show a positive trend over the past five years among small and mid-sized business owners when it comes to making money. Nearly half (45 percent) expect profits to increase during the next six months while 41 percent expect the bottom line to remain the same. Only 12 percent expect a decrease, the lowest since 2006. In terms of sales, 51 percent expect an increase compared to 52 percent in the fall.

“Business owners’ mood may have been impacted by the stock market volatility and presidential campaign rhetoric since the start of the year,” said PNC’s Chief Economist Stuart Hoffman. “But their cautious optimism about sales, profits and hiring represents solid fundamentals for the economy. These findings are far from a warning sign of recession from small business owners.”

Hoffman estimates the probability of a U.S. recession in 2016 is only about 20 percent. He added that the overall survey results reinforce the fundamentals are solid for the U.S. economy and supports PNC’s forecast for real GDP growth of 2.0 percent this year, slightly slower from the 2015 pace.

Financing Needs Remain Limited

Although expectations for business prospects are promising, loan and credit demand continue on a slow path upward. Eight out of 10 owners (83 percent) say they will not pursue new loans or lines of credit in the next six months while 14 percent will. Asked if the prospect of rising interest rates would impact pursuit of a loan, 76 percent said it wouldn’t.

Other key findings include:

  • Presidential Matters: More than half (53 percent) said they were not satisfied the potential presidential candidates were addressing the key issues for business owners.
  • Fewer Pay Raises on the Way: 34 percent expect to increase employees’ pay compared to 42 percent in the fall, which was the most since 2007.
  • Shortage of Skilled Workers: Three in 10 say it is harder to find qualified employees compared to 6-12 months ago. The biggest hiring challenge is that candidates don’t have the technical skills specific to the business, i.e., computer applications, tools or machinery.
  • Further Decline in Pricing Pressure: Nearly three in 10 (29 percent) plan to charge higher prices, on par with (28 percent) in the fall. For prices charged by suppliers, 44 percent expect price hikes compared to 50 percent six months ago. Seventy-seven percent expect consumer prices to rise this year, partly reflecting the sharp drop in energy prices.
  • Healthcare Cost Impact: Asked about the Affordable Care Act, 78 percent say it had no effect on their 2015 hiring and a similar number (82 percent) don’t expect impact this year. Most (56 percent) said insurance premiums increased in 2015 – and nearly half said they went up 10 percent or more. Looking ahead to 2016, 40 percent expect costs to increase, down from 49 percent in the fall.