Small Business Owners Plan to Boost Capital Spending But Delay Hiring

Survey finds 10% leverage HIRE Act tax credit

The outlook of small business owners has improved slightly as eight out of 10 (compared to 76% in the spring) are moderately to greatly optimistic about their own company's prospects today while 20% are pessimistic (vs. 23%), according to the PNC Economic Outlook survey.

Six out of 10 small business owners nationwide intend to increase capital spending but delay hiring in a defensive move that reflects their lingering concerns about the U.S. economy. The survey also found one out of 10 owners hired or plan to hire qualified employees due to the tax credit offered by the HIRE Act passed by Congress in the spring.

"Until we see a solid pattern of small business hiring and investments re-established, the economic recovery will be a bumpy road, but not another ride over a cliff," said Stuart Hoffman, chief economist for The PNC Financial Services Group, Inc. "These findings support PNC's view that the economy will remain transitional for the rest of 2010 and into the first half of 2011 -- with weak but persistent 'half-speed' real GDP and job gains."

Almost two-thirds (63%) plan to increase capital spending during the next six months which is a significant increase from 49% in the spring. Technology equipment spending leads the list of priorities as owners look to maintain their operations without adding additional employees.

Other findings about the next six months include:

Improved Access to Credit: While three out of four owners (76% compared to 78% in the spring) do not intend to seek a new loan or line of credit, they do see greater access to financing. Thirteen percent (vs. 9% in the spring) says it's easier to obtain credit while 44% (vs. 38% in the spring) say it's neither easy nor difficult compared to three months ago.

Stalled Sales and Profits: Fewer than half (42%) expect their sales to increase compared to 47% in the spring. In terms of profits, 31% expect an increase, down from 37% in the spring.

Hiring Outlook Improved: 22% expect to hire full-time employees, the same as spring and significantly better than one year ago (17%). Only 12% plan to reduce their workforce compared to 14 percent in the spring and 18% one year ago. Manufacturing companies are most likely to hire followed by the service industry.

Still Waiting for U.S. Recovery: The overwhelming majority (91%) say the U.S. economy has yet to noticeably improve. Seven out of 10 (71%) feel the recovery is more than one year away compared to 20% who expect improvement within the next 12 months.

Local View Is Better: The sentiment is slightly less negative closer to home as 57 percent are optimistic and 42% are pessimistic about the prospects for their local economy. This compares to 41% optimistic and 58% pessimistic for the U.S. economy.

What's Your Worry?: One out of three (34 percent) say weak sales/demand for service is the most important challenge facing their business today. Their second concern at 21 percent is "changes in government policy that affect my business." These far outdistanced health insurance (12 percent) and taxes (11 percent).

The survey, which gauges the mood and sentiment of small and medium sized business owners, found almost two-thirds (63%) plan to increase capital spending during the next six months. This is a significant increase from 49% in the spring. Technology equipment spending leads the list of priorities as owners look to maintain their operations without adding additional employees.

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