U.S. economic confidence levels have remained high at the start of 2018 compared with the first quarter of 2017. Such were the sentiments among business decision makers in public and private organizations with $10 million to $1 billion in gross revenue, who completed a Q1 Middle Market Indicator (MMI) survey conducted by the National Center for the Middle Market (NCMM) research center. Their optimism in the global and local economies reached an all-time high, while confidence in the national economy stayed strong as these business leaders see their revenues climb and employment strengthen.
Middle Market Indicator survey categories, by revenue size
Smallest firms $10 M to < $50 M
Core firms $50 M to < $100 M
Largest firms $100 M to < $1 B
U.S. employment and revenue growth are up
On average nearly three quarters of U.S. companies (72) reported improved year-over-year company performance -- a record for MMI results -- with very few firms (8% average) reporting deteriorating conditions.
The number of firms reporting decreased revenue is at its lowest (7%) since 2012.
More than three-quarters (77%) of companies reported an increase in revenue over the past 12 months compared with just under that rate a year ago – again, an all-time high for MMI results -- with the largest firms having the most year-over-year growth. The number of firms reporting decreased revenue is at its lowest (7%) since 2012. While the growth rate of 8.4% in quarter one, 2018, is slightly lower than the 9.2% posted in quarter one, 2017, it reflects a climb that started in the second quarter of 2017 and indicates that revenue growth continues to rise. The next 12-month projection also looks positive, true for most industries and especially so for the construction and financial services industries.
More than half of U.S. firms (55%) reported year-over-year employment increases compared with 51% last year. Among core firms, overall employment growth in the past year signals that hiring remains strong since dipping slightly in the last quarter, and is almost at the level seen in Q3. Though the rate lags behind the 7.5% blip of Q1 2017 and hiring at smaller firms has stayed flat, the actual growth (6.3%) and expected employment growth for the next 12 months is tracking positive.
The majority of survey respondents also indicated their firms plan to add jobs and full-time positions in their operations area. IT is where larger firms will increase their workforces.
It might not be a surprise that companies still rate financial management and cost efficiencies as key drivers of growth, more than having a formal growth strategy, attracting/retaining quality staff, investing and innovating, or company expansion. Noticeably, as in prior years, staff development was rated lowest on the growth driver scorecard.
There’s also good news regarding the Short Term Index, which calculates expected net positive changes in business climate, demand and sales over the next quarter. At 96, while not as optimistic as the brief Q1 2017 spike (108), the Index is rebounding and is close to the levels not seen since Q1 2015.
Organization strategic planning could be stronger
Most (80%) core and larger firms have long-term strategic plans that look at least three to five years ahead, especially those in the health care industry, but planning remains a challenge for more than a third of smaller firms.
Given that two-thirds of all U.S. firms reported that they are more likely to convert their long-term plans into strategic goals or targets, variations among industries remain, with financial services, manufacturing and retail trade more confident than the others of their ability to achieve their strategic planning goals.
For companies in a growth phase, the most common ways to expand are introducing new products and services and entering into new markets; the plans of larger firms include an acquisition or adding a new plant or facility. Expansions made in the past year by larger firms and likely to occur in the next 12 months remain high. To be successful at innovation, however, nearly two-thirds of firms said that they must have an understanding of customers and the marketplace and be able to retain innovative employees.
Finding, building and retaining talent remain challenging
As unemployment rates go down and the labor market continues to tighten, 54% of U.S. companies report difficulty with recruiting, building and retaining talent. This rate was even higher than the response rates for challenges related to core business issues such as maintaining growth (sales, expansion, innovation) and managing capital (cash flow, profitability) or challenges related to costs (health care, labor, infrastructure).
Challenges to recruiting and retaining talent
• Fill skill set gaps
• Develop timely manager training
• Communicate with and integrate new staff
• Train, develop current workforce
For example, some companies want to fill gaps in skill sets; develop manager training that is timely enough to make a difference; provide better communication with and integration of new employees; and continue to train and develop current workforces.
Talent management remains a key short-term challenge. Some companies want to know how best to quickly fill vacancies and also compete for talent with bigger brands or national and international firms. A majority of firms said their current workforce aligns with their needs and market conditions and that they have high-performing management teams. Most claimed that their employees are more productive than those at other companies.
Larger firms claim to have the recruiting power to attract employees with the right skill sets while mid-level and smaller firms have a lower estimation of their recruiting power and other workforce issues: keeping talented employees, accessing an affordable workforce, attracting top managerial talent and providing career advancement.
Benefits/perks and company reputation are still the top reasons people work for the largest companies. But the survey also indicated that pressure is growing to raise salaries or offer additional compensation.
Keeping existing employees engaged and working at maximum efficiency are what all firms aim for. By far, the most important quality sought by companies is to develop leadership. The largest firms, more than core and smaller firms, also emphasize that they would like their managers to acquire the critical skills of strategy and innovation knowledge. The largest firms are also more likely to encourage their managers to attend career development programs and to reimburse them for earning continuing education credentials.
Bottom line: employment growth expectations continue to reflect the anticipation of strong overall company growth in this thriving market sector.
Information was taken from a report from the NCMM. The 1Q MMI Survey is a self-administered online survey of C-Level executives who are decision makers in private and public organizations with $10 million to $1 billion in gross revenues. The survey was administered in collaboration with the Ohio State University, SunTrust Banks Inc., Grant Thornton LLP and Cisco Systems.
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