Small Business Optimism Rebounds as Recession Concerns Fade

Despite ongoing high inflation, small business owners, decision makers and business leaders report strong levels of growth and high levels of optimism, which could translate into new business opportunities.

Image: Shutterstock.comThis is according to the latest Principal Financial Well-Being Index, which found that more businesses report growth compared to this time last year at 66% vs. 62%.

And small businesses—defined as businesses with two to 499 employees—continue to close the growth gap with large businesses (those with 500 to 10,000 employees). A year ago, large businesses outpaced small businesses in reporting growth by 20 percentage points at 74% compared to 54%. Now, that gap has narrowed to 12 percentage points—73% compared to 61%—signaling continued strength in the small business landscape, Principal notes.

Moreover, most businesses are on track to continue this trend with 86% of employers expecting their financials to improve within the next year.

“Business optimism is translating into action, as we see a strong correlation between economic outlook and businesses looking to increase staff, invest in expansion, and upgrade infrastructure,” notes Amy Friedrich, president of Benefits and Protection at Principal Financial Group.

Economic Outlooks

Meanwhile, businesses of all sizes are also reporting positive shifts for local and US economic outlooks. Since the last wave of Principal’s Index, conducted in the fourth quarter of 2023, there has been a 10-percentage point increase in the number of businesses that believe their local economy and the US economy are growing (at 44% and 33%, respectively ).

Overall, most businesses (66%) are reporting optimism about the economic outlook for the next 12 months, which the firm observes is a post-pandemic high.

“Businesses in the US have shown continued resilience, helping the US economy endure challenges such as the most aggressive central bank rate hiking cycle in four decades. And while US growth is set to cool, overall, small and midsized businesses are expecting another strong year for their business,” Friedrich further observes.

And as businesses report strong financial growth and subsidizing recession fears, the Index found a significant increase in businesses adding full-time staff, reflecting confidence and a strong job market. For example, as of March 2024, 53% of businesses reported that they added staff in the last three months, while only 9% decreased staff. A year earlier in March 2023, 49% of businesses added staff in the last three months, while 13% decreased staff.

What’s more, in October 2022, 50% of employers are worried about being able to attract new staff, but that level is now down to a third of employers. Notably, this ranked last out of a list of 20 key concerns.

Employees’ Optimism

Employees, on the other hand, don’t report the same level of optimism about the economy, especially as they look towards the next 12 months.

Like previous waves of the Principal’s Index that highlighted large differences in how employers and employees felt about their finances, this wave continued to see employees lagging in optimism.

Slightly more than a third (34%) of employees feel positive about the overall economic outlook compared to two-thirds (66%) of employers.

Employees also are not as encouraged about the financial health of the businesses they work for, showing a disconnect between how employers and employees view business growth. To that end, a little over half of employees (53%) feel optimistic about the financial health of the business they work for compared to two-thirds (66%) of employers.

Somewhat surprisingly, even fewer employees (44%) think the business they work for is doing better financially now than at this time last year, compared to most businesses that believe the same (77%).

“There’s an opportunity for businesses to explore greater alignment with employees to share their optimism and business outlook,” according to Friedrich, who adds that “employers are well positioned as a trusted and critical resource for their employees.”

The Principal Financial Well-Being Index surveys business owners, decision makers and business leaders aged 21 and over who work at companies with 2-10,000 employees and offer either health insurance or retirement as an employee benefit. The latest wave was conducted online by Dynata from March 4–7, 2024, with a total of 500 business owners and 200 employee participants.

Commissioned since 2012, the nation-wide survey examines the financial well-being of American workers and business employers. In 2022, the employee audience was added to the survey to compare and contrast key sentiments from employers.

The full results from the latest Well-Being Index can be found here.