Hope, not despair, describes small-business outlook on U.S. economy

• PNC economists forecast moderate growth ahead.
• About 51% of those surveyed expect sales to go up in the next six months and 47% expect higher profits.

With a little more than two weeks to go until the presidential election Nov. 8, some people are on edge about what's ahead. What happens after the nationally televised nastiness ends?

But maybe we've less to fear on the economic front than the presidential campaign rhetoric would indicate. Owners of small and mid-sized businesses actually are upbeat about the U.S. economy overall, according to the latest PNC Economic Outlook Survey.

The fall survey indicated that 71% are optimistic about the national economy — the highest since 2005 and up from 55% in the spring. About 77% are optimistic about their local economy, the highest since 2014.

►Related:What a Trump or Clinton presidency would mean for stocks
►Related:Rate hike unlikely now but maybe in time for the holidays
►Related: Get ready to pay more for some bills when rates go up

About 55% of those surveyed chose the word "hope" to describe their feelings toward the business climate the next six months,  By contrast, 11% chose "fear" and 4% picked "despair."

Michigan business owners are optimistic, so much so more are planning to hire workers. About 24% are expecting to add to their payrolls compared to 18% in the spring survey.

Some Michigan business owners have slightly lower expectations for sales growth in the next six months. About 39% expect a sales increase, compared with 45% in the spring.

► Related: Cyber security threats getting less easy to ignore

Like many of our friends and neighbors, some business owners aren't exactly thrilled with the presidential debates and the mudslinging. Some small-business owners expressed dissatisfaction with the plans of both presidential candidates from the major political parties.

"Business is a whole lot better now than it was in 2009-10 when the economy was in the dumper," said Connie Kennedy, vice president of Kennedy Sales in Clinton Township, which sells commercial playground equipment to school districts and others.

"It seems to be doing a whole lot better, but if Donald Trump wins, all bets are off," Kennedy said. "Nobody knows what he's going to do because he doesn't know what he's going to do."

Economy still looks good

On the plus side, as long as auto sales remain strong, the expectation is that the Michigan economy will benefit from continued strength in manufacturing.

Stable home prices and new construction are shoring up the housing market.

Kurt Rankin, economist for the PNC Financial Services Group, said Michigan is likely to see an inevitable pullback after an exceptionally strong couple of years for the auto industry — which can explain why fewer small business owners here expect their sales and profits to increase, compared with those surveyed in the spring.

But the economy still looks good.

► Susan Tompor:Baby boomers, like Cher, must study IRA rules

Michigan small-business owners could be more willing to hire, in part, because they do not see wages going up significantly, he said.

"Detroit has gotten back on track since the early point in the year," Rankin said.

Daren Schurman, president of Aurum Design in Rochester, which offers custom fine jewelry, said his business was up last year and remains on pace in 2016 to be almost even with 2015. Better times for auto sales and bonuses can help the sale of jewelry and other upscale items.

But Schurman, who has been in business 28 years, said there is some uncertainty about the upcoming holiday season, particularly if the presidential election leaves some consumers more angry or on edge and they become even less open to spending money.

"It's better than it was eight years ago," said Schurman, who has a studio on Main Street in downtown Rochester.

Consumers more reluctant to spend

Even though the country has recovered from the financial meltdown, he said, consumer habits seem to be changing.

"They're not wanting to show off like they used to," Schurman said. "They're reluctant to spend money like they used to."

In Michigan, he said, retailers and others are dealing with extremely tight margins in many cases. As a result, some retailers who make 60% or so of their incomes during the holidays could face more trouble if consumer sentiment deteriorates in the next month or so.

The question is: How willing will consumers be to splurge?

The National Retail Federation's official forecast for the holiday season calls for sales in November and December to increase 3.6% to $655.8 billion. Holiday sales in 2015 increased 3.2% over the previous year.

If correct, that pace would be significantly higher than the 10-year average of 2.5% or the seven-year average of 3.4% since the recovery began in 2009.

Those holiday sales projections would exclude autos, gas and restaurant sales.

"Consumers have seen steady job and income gains throughout the year, resulting in continued confidence and the greater use of credit, which bodes well for more spending throughout the holiday season,” said NRF chief economist Jack Kleinhenz in a statement.

The risk? He said increased uncertainty relating to the presidential election and geopolitical news — as well as unseasonably warm weather — could impact shopping.

Moderate growth 

Overall, economists remain upbeat calling for moderate economic growth for the rest of 2016.

The economic forecast from the PNC Financial Services Group noted that the overall job market in the second half of 2016 in the U.S. is expected to continue to improve, along with the U.S. economy.

► Related: Angst drives voters, but PNC economist sees growth ahead

The U.S. jobless rate edged up to 5% in September — up from 4.9% in August. But the PNC forecast predicts the national unemployment rate will be 4.8% at the end of 2016 and 4.6% at the end of 2017.

"With the job market approaching full employment, wage growth will accelerate, in turn leading to an uptick in inflation," according to the PNC National Economic Outlook.

The expectation is that the Federal Reserve will raise short term rates by 0.25% at the mid-December meeting, according to PNC's economists. That would put the federal funds rate in the range of 0.50% to 0.75% — still extremely low.

The Fed could raise rates possibly two more times in 2017 and another three times in 2018, again moving gradually, according to the PNC forecast.

All and all, we're not dealing with huge economic threats on the immediate horizon. But caution is part of the strategic mix for many small business owners.

"The glass for small business owners appears half full instead of half empty, but they aren't ready to buy a round for everyone," said Stuart Hoffman, PNC's chief economist in a statement.

Contact Susan Tompor: 313-222-8876 or stompor@freepress.com. Follow her on Twitter @Tompor.