This blog post was written by Mark S. Lee on his guest blog for CrainsDetroit.com focused on small business, and originally published on CrainsDetroit.com on April 23, 2018. Click here to view the original publication on CrainsDetroit.org.
According to 2012 U.S. Census figures, there are nearly 62,000 small businesses in Detroit and about 152,000 across Michigan.
Regarding the number of women-owned businesses, Wayne County ranks second among counties in the country and the state of Michigan ninth among states. And Detroit is a powerhouse when it comes to the total number of small businesses, ranking fourth among cities nationally.
With new businesses seemingly opening constantly, the city continues to attract new entrepreneurial investments — as evidenced by the number of accelerators, incubator programs and pitch competitions sprouting up over the last several years.
Healthy, sustainable small businesses are essential to economy. In fact, small businesses continue to be an economic driver nationally and locally. As reported by the Small Business Administration, they’ve accounted for 63.3 percent of all new jobs created between 1992 and 2013.
With this backdrop, I wanted to get a “state of small business” assessment based on a recent study by PNC Bank. I discussed the bank’s recently released 2018 Spring Economic Outlook survey with Cynthia L. Gardner, senior vice president and business banking market manager. Michigan’s results, with 152 small businesses surveyed, are part of the bank’s national survey of small business owners.
Mark Lee: What are key findings for 2018, and how do these results compare to 2017?
Cynthia Gardner: Local sales and hiring expectations set new highs for the Michigan report. For example:
- 29 percent of survey respondents expect to increase their hiring over the next six months. This is a 5 percent increase over our fall 2017 survey and 10 percent relative to the spring 2017 survey.
- 63 percent expect an increase in sales over the next six months. That figure was 56 percent in our fall survey.
- 88 percent are optimistic or moderately optimistic about the national economy, while 89 percent are optimistic or moderately optimistic about the local economy — both historic highs for the PNC Economic Outlook.
- 70 percent of respondents expect to make no changes to their businesses in 2018 in response to the tax reform bill.
Lee: Small businesses are job creators nationally and locally. What percent of all jobs are generated by small businesses?
Gardner: According to the SBA, 63.3 percent of new jobs created in the U.S. were by small businesses from the third quarter of 1992 until the third quarter of 2013.
Lee: How are entrepreneurs feeling about the national and local economies, and what’s driving this optimism across Detroit and the state?
Gardner: Eighty-eight percent are optimistic or moderately optimistic about the national economy, while 89 percent are optimistic or moderately optimistic about the local economy — both historic highs for the PNC Economic Outlook.
[And] with support from tax cuts and an increase in federal spending, U.S. economic growth will accelerate in 2018 and the labor market will continue to tighten. To prevent the economy from overheating, the Federal Open Market Committee will continue to gradually raise the federal funds rate throughout 2018.
Lee: What are hiring expectations for 2018, and how does that compare with a year ago?
Gardner: Twenty-nine percent of survey respondents expect to increase their hiring over the next six months. This is a 5 percent increase over our Fall 2017 survey and 10 percent relative to the Spring 2017 survey.
Lee: It’s my understanding small businesses are expecting a sales increase in 2028. What percent of businesses are expecting an increase and what key factors are driving it?
Gardner: Sixty-three percent expect an increase in sales over the next six months. That figure was 56 percent in our fall survey. Michigan’s economy should continue to reflect steady improvement throughout 2018. Jobs growth has been steady over the past five years, a trend that should continue.
As the unemployment rate declines, wage growth should pick up while employers compete to attract increasingly limited labor resources. While overall auto sales numbers may not quite match 2017, profits will remain high as U.S. auto companies fill the demand for higher-profit vehicles.
The housing market in Michigan is positioned to sustain healthy supply growth and home price advances for some time.
Lee: What impact will the recently passed tax reform bill have on small businesses?
Gardner: A significant majority (67 percent) of the Michigan business leaders surveyed are familiar with the details of the Tax Cuts and Jobs Act of 2017, but only 31 percent report understanding the specific effects on their business. For all tax reform questions, at least a quarter of respondents (26 percent) note it is too early to tell the impact.
As a result, exactly seven in 10 expect to make no changes to their business in 2018 in response to the tax bill.
Lee: And attitudes and expectations regarding profitability?
Gardner: When it comes to their bottom line, more respondents anticipate that the new tax legislation will have a positive (33 percent) than a negative (7 percent) or neutral (27 percent) impact. When it comes to paying taxes, more business leaders expect a positive than negative impact. A third (33 percent) anticipate a major or moderate positive effect on their business taxes and the same number anticipate a major or moderate positive effect on their personal taxes.
More than three in 10 business owners and executives in Michigan are optimistic about a positive impact of the new tax legislation on sales due to consumer spending (31 percent) and business confidence (34 percent). More respondents expect the U.S. economy to benefit from the tax legislation (41 percent) than their own business’ bottom line (33 percent).