Macro uncertainty amid a series of shocks has led to a decline in confidence in both the business and broader economic outlook. Moreover, despite limited direct global exposure, these shocks have made small businesses grapple with the same macro pressures long faced by larger firms. Helping buffer these concerns, however, are relatively resilient underlying fundamentals, which should reduce the risk that these anxieties translate into broader economic weakness.
The latest Principal Well-Being IndexSM signals a sharp rise in economic anxiety among U.S. small businesses, with recession fears increasingly front of mind.
A series of macro shocks is weighing heavily on sentiment. Elevated interest rates, tariffs, supply-chain disruptions and rising energy costs are compressing margins and eroding confidence. As a result, small businesses are being pulled into the same macro pressures long faced by larger firms. Despite having limited direct global exposure, respondents report paying close attention to geopolitics, shipping routes and trade policy—underscoring how global disruptions are increasingly shaping local outcomes.
While sentiment does not drive downturns on its own, sustained pessimism can influence business behavior in ways that weigh on activity at the margin. Firms facing heightened uncertainty may delay investment, slow hiring, or defer discretionary spending, potentially reinforcing any emerging economic softness.
However, while subdued optimism has pushed firms to prioritize cost efficiency over expansion more recently, underlying fundamentals across the small business sector remain relatively resilient. Strong balance sheets, manageable debt levels and healthy cash flow provide important buffers, and should help firms absorb shocks while reducing the risk that rising anxiety translates into a sharper economic downturn.
Footnotes
The Principal Well-Being Index measures sentiment among small- and medium-sized businesses by asking business decision makers about current conditions and the economic outlook. The most recent survey, conducted between March 13 and 27, collected responses from 1,000 firms ranging in size from 2 – 10,000 employees.
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About the Principal Financial Well-Being IndexSM
The Principal Financial Well-Being Index℠ (WBI) is recurring research used to track sentiment around repeated financial health measures and timely issues relevant to businesses.
Business owners, decision makers, and business leader participants who represent companies with between 2 to 10,000 employees (n=1,000) provide information by completing a 15-minute online survey. Access to sample is provided by ROI Rocket, a third-party research panel provider.
In 2025, the WBI added a formal index. The index number in the WBI is calculated by taking responses from 6 perceptual measures evaluating current financial health, financial comparisons year over year, and future projections for business and economic outlook. The percentages of respondents who answered positively for each measure are averaged and standardized to a 0-10 scale, with perceptions of business / company, local economic, and U.S. economic growth weighted 60%, 20%, and 20% respectively within their aggregate measure. Small businesses = 2–499 employees. Large businesses = 500–10,000 employees.
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