(This column originally appeared in the Inquirer)
Across the U.S., small business owners seem to have an upbeat outlook.
Several recent surveys showed high levels of optimism among small business owners.
I can understand why. They see a lower tax environment and the rollback of environmental, workplace, DEI, and other regulations that have caused them headaches in the past. They’re expecting financing costs to come down when the Federal Reserve inevitably cuts interest rates. They’re enjoying a more “pro-business” environment in Washington.
If you’re operating a business in the Philadelphia area, are you also optimistic? The answer I’m hearing is… it depends.
What national small business surveys say
The National Federation of Independent Businesses said last month that small business optimism rose to a level above its 52-year average as respondents reported “better business conditions and that it is a good time to expand.”
Online service provider GoDaddy found in their recent poll that 72% of small businesses expect their revenues to increase or remain stable in the next six months and 45% believe the broader U.S. economy will hold steady or improve during that period.
Among more than 500 small business owners recently surveyed by PNC Bank 84% were “optimistic about prospects for their own business,” up from the spring (78%) and last fall (76%).
Industry trends in the Philadelphia region
The Small Business Administration (SBA) says there are more than 34 million small businesses in the country with over 2 million in Pennsylvania, New Jersey and Delaware combined.
In the Philadelphia area, there are more than 600,000 small businesses alone, according to the Economy League of Greater Philadelphia. These numbers are probably understated if you take into consideration all the freelancers, contractors, side-gigs and home office businesses that are likely not included.
Some are doing better than others, thanks to differing industry trends.
For example, thousands of nonprofit organizations in the region are already seeing a freeze or a cutback in government spending by the Trump administration.
New tax benefits for charitable contributions may help. A rising stock market can also help increase their portfolios. An aging population of donors may have cause to transfer more wealth from their retirement savings to save money. But overall nonprofits are facing a tough outlook.
Meanwhile, Philadelphia’s two biggest industries are healthcare and education.
These industries support countless small businesses that do everything from legal work to website design and fitness training, and they are also facing increased scrutiny and funding cuts by the current administration.
U.S. manufacturing, which includes many small businesses in the region, could experience a renaissance as more businesses and demand move onshore thanks to the Trump tariffs and new tax incentives for buying equipment and building facilities.
Businesses in the services industry, which based on national trends probably make up around 80% of the area’s economy, will likely be little affected by tariffs.
However, smaller retailers and restaurants are already seeing drop-offs in revenues thanks to higher prices, due to tariffs, which are driving some consumers to big box stores and national chains that can absorb the cost more readily.
Construction and real estate, a major industry throughout the region, continues to stagnate thanks to high commercial and mortgage rates and a lack of housing supply that’s driving up home prices.
So how should local small business owners feel?
Some significant challenges lie ahead for small businesses in the region.
Immigration raids will continue to restrict labor availability.
Higher interest rates will continue to make financing difficult.
Rising inflation will cut into margins and impact consumer spending. Already, some are predicting as much as a 5% decline in holiday spending, the most important time of the year for many small businesses.
And there are other, more macro concerns.
Will rising consumer debt and federal deficits impact markets? Will a geopolitical event cause supply chain disruptions? Are markets experiencing an AI bubble similar to the dot-com era? A significant stock devaluation impacts the economy in many ways, from retirement savings to currency valuation to confidence.
Speaking of AI, the U.S. Chamber of Commerce is reporting that in 2025, businesses have doubled their adoption of AI, but are grappling with usage, security, privacy, and regulatory concerns.
This adoption will continue to expand as the technology matures and becomes more reliable. With it are great opportunities for those that figure out how to best use it. But, like any new technology, AI proliferation will also create great disruption with some businesses profiting and others losing out.
Larger companies are spending hundreds of millions of dollars to leverage this technology. Many of my clients are trying to figure out where this is all going.
Optimistic? Hmmm.
The economic outlook is very uncertain. The current administration is unpredictable.
My advice is to be careful when reading these “optimism” surveys. With so many small businesses in both the country and the region it’s impossible to generally say how optimistic they should — or shouldn’t — be. Some will always do better than others. All will face challenges. My best clients remain wary.
If you’re operating a small business it’s good to be optimistic. But it’s more important to be realistic.
