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THE PNC ECONOMIC OUTLOOK
Survey of Small & Middle-Market Business Owners
April 2016
NC Businesses Cautious Amid Pessimism About Economy
KEY FINDINGS: OUTLOOK FOR NEXT SIX MONTHS
AN A L Y SI S B Y
Mekael Teshome
PNC Economist
Our spring 2016 survey
shows small and mid-sized
business owners in North
Carolina are cautious about
the next six months. Their
expectations are stable for
sales and profits despite
greater pessimism about the
economy given the stock
market lows and
presidential election rhetoric
since the start of the year.
North Carolina’s economy
will likely sustain strong
growth through 2016.
Financial services,
education, health care and
professional services will
drive above-average payroll
growth. Low business costs,
increased population and a
young, educated workforce
will boost the expansion.
The smaller-than-average
decline in house prices
during the recession means
that local household wealth
is on better footing.
The overall findings from
our biannual survey
reinforce the fundamentals
are solid for the U.S.
economy. PNC is
forecasting real GDP growth
of 2.0% this year, a slight
slowing from the 2015 pace.
Positive Expectations for Sales and Profits
When it comes to making money,
PNC found North Carolina
business owners are upbeat. Their
expectations are stable for sales
and higher for profits compared to
fall. Only 2% expect a decrease in
sales, the lowest in four years of
this state survey.
NC vs. U.S.: Nationally, 51% also
expect higher sales and 45% expect
profits to go up.
Sales
Profits
■ Expect
increase
42%
51%
51%
37%
42%
9%
Fall
2015
2%
13%
Spring
2016
Fall
2015
48%
■ No
change
■ Expect
decrease
42%
44%
7%
Spring
2016
Growing Concerns about the Economy
33%
42%
Pessimistic
Fall 2015
Pessimistic
Spring 2016
42% are pessimistic about the U.S. economy,
the most since 2014, and a 9 percentage point
increase from the fall. 27% are pessimistic
about their local economy, also the highest
since 2014. At the time the survey was
conducted, the stock market was down
significantly. Amid the presidential primaries,
56% were not satisfied the potential candidates
were addressing the key issues for businesses.
13%
Fewer Plan to Hire: One in eight (13%) plan to add employees during
the next six months, down from 16% last fall and 19% a year ago.
28%
Few Pay Raises on the Way: 28% expect to increase employees’
pay, consistent with 29% in fall and 31% last spring.
27%
Shortage of Skilled Workers: 27% say it is harder to find qualified
employees compared to 6-12 months ago. The biggest challenge is that
candidates don’t have the technical skills specific to the business, i.e.,
computer applications, tools or machinery.
32%
Further Decline in Pricing Pressure: 32% plan to charge higher
prices, on par with 30% in the fall. For prices charged by suppliers,
46% expect price hikes unchanged from six months ago. 81% expect
consumer prices to rise this year, despite the sharp drop in energy
prices over the past year.
© 2016 PNC
THE PNC ECONOMIC OUTLOOK
Survey of Small & Middle-Market Business Owners
April 2016
NC Business Owners Expect Strong Profits, Steady Retirement Savings
Upbeat about the Bottom Line
72%
Profits: Three in four (72%) NC business
owners expect to make a net profit this
year, up from 62% six months ago. The
average profit is about 7% of sales. 24%
expect to make more than 10% over
operating expenses.
Growth: One in four (27%) hope to
substantially grow their business by 10% or
more over the next two years. Two in 10
cite their own personal drive as the top
factor. This is followed closely by rising
customer demand, hiring the right people,
and understanding the marketplace and
competition.
PNC INSIGHT
What’s Your Vision?
Five Steps to Future Success
Here are five phases to help make your business vision
come true, per the U.S. Small Business Administration:
No Changes to Pay or Retirement Savings
79%
Eight in 10 (79%) say their own salary and
compensation will remain the same during
the next six months. Similarly, 70% say
their personal retirement savings will
remain the same as well.
PNC INSIGHT
Keys to the Retirement You’ve
Always Wanted
Today’s retirement has business owners rethinking
everything from when it will begin to whether it will be
more like shifting to part-time work than quitting
altogether. Here are some things to consider:
• Investing: Create a simple portfolio with limited risks
and little maintenance. Don’t forget to invest in your
company, especially if you plan to sell out in the end.
• Dedicated Savings: Protect the retirement pot.
Create a dedicated account for each savings goal,
like your kids’ college.
1. Organization: How will you combine people,
resources and structure to achieve your goals?
• Trust Funds: A trust can be a great way to ensure
your business continues to run – and your family will
be taken care of.
2. Observation: Increase your powers of observation to
know better what motivates people, solve problems
more effectively and distinguish between alternatives.
• Hand-Offs: Who gets the business? Proactive
succession planning can ease the transition, i.e.,
address estate and gift tax implications.
3. Views: The environment, marketplace, project and
measurement views help to think about outcomes,
identify critical elements and adjust your actions.
• Selling Your Business: Find out what it’s worth,
which allows time to find ways to increase the value.
Once it’s ready for sale, consider options for
transferring ownership rights, i.e., outright sale or
lease.
4. Driving Forces: Individual and organizational
incentives, qualitative factors (i.e., defined vision) and
quantitative factors (i.e., results, productivity).
5. Ideal Position: As the final phase, your outline
should include: the conditions to succeed, your
marketplace niche, opportunities, core competencies,
and the strategies and tactics to pull it all together.
12%
Best Ways to Forecast Cash Flow
Little Demand for Loans: Nearly nine in 10
(86%) say they will not pursue new loans or
lines of credit in the next six months while
12% will. Asked if the prospect of rising
interest rates would impact pursuit of a loan,
83% said it wouldn’t.
The creation of a simple forecast to predict when
payments come in and go out is key to cash flow
management. In the PNC survey, the most common
tool for forecasting among owners is professional help
from an accountant or banker followed by internal
spreadsheets. Next is accounting software and online
banking.
36%
Health Care – Costs and ACA: 36% said
insurance premiums increased in 2015.
Looking ahead to 2016, 19% expect these
costs to increase, down from 36% in the fall.
Asked about the Affordable Care Act, 85%
say it had no effect on 2015 hiring; a similar
number (83%) expect no impact this year.
The PNC Financial Services Group, Inc. (NYSE: PNC) is one of the largest diversified financial services organizations in the United States, organized around its customers and
communities for strong relationships and local delivery of retail and business banking; residential mortgage banking; specialized services for corporations and government entities,
including corporate banking, real estate finance and asset-based lending; wealth management and asset management. METHODOLOGY: Artemis Strategy Group conducted the
telephone survey from 1/21/2016 to 3/8/2016, among small and mid-sized businesses. 502 interviews were conducted nationally. Sampling error for the nationwide results is
+/- 4.4% at the 95% confidence level based on 154 interviews in North Carolina. DISCLAIMER: This report was prepared for general information purposes only and is not intended
as specific advice or recommendations. Any reliance upon this information is solely and exclusively at your own risk.
© 2016 PNC