Nate Schelhaas, head of the business owner segment at Principal Financial Group, analyzed the company’s latest Well-Being Index during the fourth episode of the Iowa Economy Podcast recorded Dec. 3. 

The Iowa Economy Podcast is hosted by Business Publications Corp. President and Group Publisher Chris Conetzkey and covers economic trends facing Iowa businesses. 

During the episode, Schelhaas and Conetzkey focused on Principal’s index, which measures business sentiment and outlook. The latest index was published Nov. 19 and sat at the third-lowest reading in four years. November’s reading was 6.5 compared to July’s 6.8 and April’s 6.02. 

Highlights of Schelhaas’ index insights include:

• Measured on a scale of 1-10, the overall confidence index has fallen from 8 to 6.5 in the last year.
• The decline is driven mostly by national and local economic uncertainty — tariffs, interest rates, inflation and unpredictable news cycles.
• Small businesses are being hit hardest, with rising costs they can’t easily pass on and limited resources to adapt.
• AI adoption is a growing dividing line: Large companies are investing and expecting growth, while small firms lag behind but still see potential benefits.
• The economy’s future direction may hinge on businesses growing more comfortable with interest rates and developing or finding AI-capable talent.
• Schelhaas said business owners are largely confident about how their own company is performing, but have uncertainty about national trends. 

“Business owners are really confident in what they’re doing and how they’re doing it in their business,” he said. “But if you look nationally, it’s not hard to see that there’s a lot of uncertainty. You can go back to April and Liberation Day and tariffs, and people don’t know what that means for them. Rising interest rates is another thing you can point to. There’s the fear of inflation. There’s a host of things nationally that are driving down confidence in our national economy.”

Schelhaas pointed to a conversation he recently had with a car dealer from outside Iowa who said the tariff impact for his business was a non-event, but when it came to buying parts, it was a different story. 

“Mexico and Canada, when it comes to car manufacturing, is largely exempt [from tariffs], but what was really causing trouble was parts. If they needed a part, it got more and more and more expensive as the tariff battle went on. It’s that uncertainty that’s causing business owners to feel less confident in that national economy. And then we’d be kidding ourselves if we didn’t think that trickled down to the local economy, as well, as prices increase, as bank rates and loan rates increase,” he said. “I think it’s all connected, but it’s really that national confidence, that local economy that’s driving down that score. While confidence in their own business might be down just a touch, it still remains pretty strong.”

The index readings differed between small and large businesses. For large businesses with 500 or more employees, the index came in at 7.05, a 1.5% decrease from July. For small- to medium-sized businesses with 499 or fewer employees, the index was at 5.97, a 4.8% decrease from July. 

When it comes to issues like tariffs, Schelhaas said, large businesses have people on staff with the experience and expertise to handle it. 

“They’ve dealt with it. They know what to do,” he said. “Smaller businesses, a lot of them don’t. It’s something new for them. So how do they deal with that? There’s a lot more pressure on them. But it’s also the rising costs. If you look at just the cost of goods going up, it’s gone up for six straight months. Over 70% of the businesses we surveyed report higher expenses this quarter. But what the larger businesses are able to do is they’re able to increase their prices commensurate with the increase in expenses. If you think about those larger businesses, I won’t say their prices are largely a formula, but there’s much more of a process. There’s much more of a transactional approach, where the cost of goods is one input, the cost of labor is another, and it comes out with the cost of a good, and that gets passed on to the consumer.”

Smaller businesses can’t always do that, because it would damage client relationships. 

“If you think about a lot of those smaller, those mid-sized businesses, a lot of those are built on relationships, and those businesses aren’t as quick to raise prices,” he said. “Smaller companies really haven’t, and so they feel that pressure more acutely than those larger businesses do. I think that is one of the reasons you’re seeing that disparity, or that difference. Even though it’s a small difference, you are seeing it between the businesses that we characterize as large business versus that small to mid-size.”

Increasing business use of AI

The two also discussed how businesses are using artificial intelligence to be more productive and reduce waste. Principal’s index addressed AI and surveyed companies about their AI use and how it might affect their future.

Index insights about AI included:

• 34% said there would be no change to staffing or wages.
• 23% said staffing and wages would increase.
• 22% said staffing would not change and wages would increase.
• 19% said they don’t plan on using AI.
• 15% said staffing would decrease and wages would increase.
• 6% said staffing and wages would decrease.

“I think that you are seeing larger organizations being able to take advantage of that more quickly than some of the smaller to mid-sized businesses,” Schelhaas said. “The interesting thing, though, across the spectrum, if you look at AI, the companies that are using it or expect to use it, they do expect to grow. They expect wages to grow. They expect staffing to stay the same, or maybe grow.”

News of tech company layoffs because of AI is a fluke, he added.

 “We see people saying, ‘We want to take advantage of artificial intelligence, and we think our staff is going to be about the same, or maybe go up,’” he said. “That’s roughly just less than 80% of the population we surveyed think staff is going to stay the same or go up. Sixty percent of them think wages are going to increase, and that’s really getting at the type of employee you’re going to have to hire, people who know how to develop artificial intelligence solutions, who are able to implement them.”

One of the top business concerns, rising health care costs, is another issue that’s different for large companies compared to small, he said. 

“The cost of health care is going up, and I think the larger organizations have a bigger base over which they can spread [those costs]. The smaller ones probably don’t quite have the same ability.”

Check out all of the episodes