Stagnant labor force holding back Pittsburgh’s recovery
Two years after the coronavirus came to the United States, the national economy isgenerally in good shape.
The unemployment rate, whichsoared to almost 15% in April 2020, fell to 3.6% in March 2022, just slightly above the pre-pandemic 3.5% rate. After losing 22 million jobs in March and April 2020, the economy has added back more than 20 million jobs, and employment should return to its pre-pandemic level later thisyear.
Small businesses have contributedto this recovery.
According to data from payroll processing firm ADP, employmentat private-sector firms with fewer than 50 employees is now 1.4% above its pre-pandemic level, while employment at larger businesses is just 0.4% higher, even though small businesses lost proportionately more jobs at the start of the pandemic.
A big reason why small businesses have recovered so swiftly is the Paycheck Protection Program that Congress and the Trump administration enacted at the beginning of the pandemic. The PPP provided very low interest loans to small businesses; those loans were forgiven if the businesses met certain requirements in terms of maintainingstaffing and pay levels. The PPP allowed many small businesses that would have been forced to close early in the pandemic to remain open and gradually resume normal operations as the economy recovered.
Small businesses are generally feeling good about the economy and their own prospects, but their confidence is not quite as strong as it was in late 2021, according to PNC’s Spring 2002 semi-annual Economic Outlook survey of small and mid-size business owners and executives. (Results were collected from a national sample of small and mid-size businesses by an outside firm, and the survey was conducted before Russia’s invasionof Ukraine.)
More than one-half of businesses expect stronger demand for their products over thenext six months, and more than one-half also expect their sales to improve over this period. More than one-third expect their profits to increase over the next six months, while only 7% expect their profitsto decline.
Almost one-half (47%) are optimistic about their own company’s near-term prospects, and another 52% are moderately optimistic; only 2% are pessimistic. While the share of those who are pessimistic is at the lowest level in the history of the survey, going back to 2006, the share of those who are optimistic fell slightlyfrom Fall 2021.
That modest decline in sentimentis also reflected in business owners’ views on the economy. The share of those who are optimistic about the national economy fell from 34% in the fall to 15% in the spring,with an increase in the share of those who are moderately optimistic essentially holding steady at around onehalf. The share of those who are pessimistic rose 10 percentage points from the fall to thespring, to 23%.
A big reason for the decline in optimism is inflation. As of March, prices in the U.S. were up more than 8% from a year earlier according to the Consumer Price Index, a broad measureof household costs.
This is the highest inflation in four decades. More than one-half of the businesses surveyed expect to raise prices to their customers, and of those, more than one-third expect to increase prices by 5% or more. The majority of firms expecting to raise prices report that they are doing so because of rising non-labor costs.
Althoughhigh inflation is a concern for many of the small businesses surveyed, they report some areas of improvementin the economy.
Two-thirds of respondents with a supply chain say that they expect supply-chain disruptions to ease over the next 6 months, while only 6% expect them to get worse; this shouldhelp slow inflation.
And while hiring remains a challenge for many small and mid-sized businesses, their problems may be easing. Only one-quarter of respondents in the Spring 2022 survey say that hiring has gotten more difficult over the past six months to one year, down from one-third in Fall 2021. And businesses are making adaptions in response to the tight labor market, implementing health and safety improvements, increasing wages and salaries, offering more workplace flexibility, and broadening their hiring practices.
The U.S. economy faces challenges in the spring of 2022 from high inflation, rising interest rates, and a slowingglobal economy because of the Ukraine-Russia conflict. But overall economic fundamentals remain solid, as demonstrated in the results from PNC’s Spring 2002 semiannual Economic Outlook survey of small and mid-size business owners and executives.
Economic growth should remain solid throughout 2022, with continued strong job growth and the unemployment rate set to fall to the lowestlevel in more than 50 years.
The outlook is murkier for next year, however, dependent on whether the Federal Reserve can raise interest rates enough to cool off economic growth and slow inflation, but not too much to potentiallycause a recession.