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Middle Market Outlook: Sunny with a Chance of Clouds

By Generational Equity

Middle Market Outlook

Middle market business leaders feel overwhelmingly positive about their company’s prospects according to a recent survey. But, a substantial portion of those business owners are concerned about increased costs looming on the horizon.

Produced quarterly by the National Center for the Middle Market (NCMM), the Middle Market Indicator survey polls 1,000 CEOs, CFOs, and other C-suite executives of U.S. companies with revenues between $10 million and $1 billion. Privately owned companies represent 85% of respondents and one-third are owned by private equity firms.

These leaders answer questions about key business indicators of past and future performance in revenue, employment, and allocation of cash. They are also queried about their confidence in the global, U.S., and local economies and important areas where they see challenges.

Overall, for the third quarter of 2018, those surveyed reported an annualized rate of revenue growth of 8.6%, up from 7.4% in the second quarter.

The executives’ confidence in their local economy was highest at 93%, followed by 88% and 80% confidence in the national and global markets respectively. Over two-thirds of companies plan to invest their extra cash in IT and plant/equipment.

Hiring challenges continue for some middle market companies

The average rate of employment growth slowed a bit to 6.4% from last quarter’s rate of 6.7%, a figure still well above the historical average of 4.2%. Thus, many middle market company leaders report finding and keeping talent are still important issues they’re trying to solve.

Increasing pay was the number one method deployed to ease hiring and retention stressors, followed by improvements in:

  • Flexible work arrangements
  • Other types of incentive such as bonuses
  • Training and education
  • Health insurance
  • Employee financial wellness
  • Vacation time
  • Maternity/paternity policies

The largest middle market companies are expected to add the most jobs in the coming months.

A few worries loom in the middle market

The only cloudy forecast in this extremely positive survey: By a two-to-one margin, those polled said that tariffs will hurt their business and eat into profits. According to the survey:

“It takes about six months for tariffs to work their way from sales to shipments to shelves, according to Grant Thornton chief economist Diane Swonk, so their full effects won’t be clear until well into 2019.”

The types of companies most vulnerable to tariff issues are wholesalers and retailers, followed by construction and manufacturers. Business services such as IT and financial management firms seem to be the least vulnerable.

You can read more about the NCMM’s perspective on tariffs and the middle market’s general outlook on their website.

By Jessica Johns Pool

© 2018 Generational Equity, LLC. All Rights Reserved.

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