While most U.S. small and midsized businesses and their employees believe a recession is likely in 2023, business owners are opting to raise prices and reduce operating expenses before cutting salaries or benefits, according to the latest Principal Well-Being IndexSM (WBI) study by Principal Financial Group®.
Despite this dip in economic confidence, the study found more businesses are currently growing compared to this time last year (61% vs. 51%). More than half (53%) of small businesses also reported growth, the highest in 2022 and up from 46% in July. More than 70% of large businesses reported growth in the most recent October survey.
Businesses focus on maintaining benefits and wages
However, businesses and employees remain uneasy about economic pressures. Seventy percent of employers and 74% of employees believe it’s somewhat or very likely a recession will happen in the next six months; this is up from 65% of employers in July.
To address a potential downturn, businesses are choosing to reduce operational expenses or raise prices on goods and services over reducing employee salaries and benefits. Sixty four percent of small businesses said they will not reduce salaries compared to 49% of large businesses. Similarly, 57% of small businesses said they will not reduce benefits to adapt for a recession compared to 45% of large operations. Nearly two-thirds (63%) of employees surveyed reported wage increases within the past year.
“If there’s one constant in our research of the small and midsize business community, it’s that they remain committed to their employees. Earlier this year, businesses said they weren’t going to impact benefits or wages, and that sentiment is holding,” said Amy Friedrich, president of U.S. Insurance Solutions at Principal®. “While the economic outlook is murky, business owners understand employees are their most valuable asset and they’re continuing to support them with retirement and protection solutions, as well as financial wellness programs.”
Employee uptake of financial wellness programs increased 70% in the past six months, and 79% said these programs better prepare for retirement.
Employees prepare for potential recession
About half of employees surveyed indicated they are already reducing discretionary spending to prepare for a potential recession. However, “decreasing savings for retirement” is the least likely action employees would take amidst a recession.
“Financial wellness tools clearly matter to employees, but building a program is just the start to help employees,” said Heather Winston, director of financial planning and advice with Retirement & Income Solutions at Principal. “Employers can help to further support them by communicating the availability of those benefits and encouraging usage.”
Recession concerns are having a significant impact on employee mental health, especially among younger generations. More than two-thirds (67%) of employees agree that concerns about a recession have impacted their stress levels or mental health, with Millennials (79%) and Gen Z (76%) more likely to report impacts.
“When examining the list of concerns, a disconnect persists between employers and employees,” said Friedrich. “While employers are more concerned about economic impacts, employees’ concerns focus on personal health and wellbeing. Employers have an opportunity to focus on understanding and meeting employees’ needs and addressing them for continued long-term job satisfaction and growth.”
See all results and insights from the latest Principal Financial Well-Being IndexSM (PDF).