Middle market at Q2 2016: Where are we now?

Things continue to look pretty rosy for most middle-market businesses, according to the Middle Market Indicator, but business leaders do have some concerns.

Revenue growth on the rise Middle-market companies report revenue growth averaging 7.2%, up from 6.3% a year ago. Fifty-six percent project revenue growth, albeit down from 62% a year ago. Large middle-market companies (those with $50 million–$100 million in annual revenue) fared particularly well — reporting mean revenue growth of 8.5%, with nearly 80% of companies reporting increases. 4 signposts of middle-market prosperity
Help wanted, especially in certain industries
Employment growth is up, with mean year-over-year at 4.4% as of Q2 2016, up from 3.6% the two previous quarters and 3.3% a year ago. The largest firms have increased hiring by 5.9% since last year. Construction and manufacturing show the biggest gains at 6.1% and 5.2% respectively. The service sector, too, is poised for excellent employment growth at 5.2%. Nearly four in 10 (37%) middle-market businesses plan to hire in the next 12 months.

Locally confident, globally ambivalent Middle-market businesses continue to feel very confident in their local economy (79%, a slight dip from 80% a year ago). That confidence, however, wanes somewhat at the national level (69%, down from 73% a year ago) and even more so at the global level (50%, down from 58% a year ago). It’s worth noting that this ambivalence regarding the global economy was reported in mid-June — prior to the Brexit referendum. We can expect to see global confidence among these companies dip further in the coming months.

Strong but shrinking appetite for investment More than six in 10 (62%) say that if given an extra dollar of profit, they would invest the money, rather than hold onto the cash, but this is down from 67% a year ago. Those that are planning to invest are pursuing various plans. Twenty-four percent are considering a new plant or facility in the coming 12 months, while 39% plan to expand domestically and 42% report that they will introduce a new product or service.

Key challenges: Regulations, talent, political uncertainty
Middle-market businesses are worried about a number of issues in the short term and a different set of woes in the long term. In the near term — three months — the most frequently cited concerns are health insurance and rising transportation costs. In the coming 12 months, top woes include election-year uncertainty and what it means for their taxes and policies, as well as pressures surrounding staffing key positions, competition and innovation. Our own Manufacturing Survey indicates taxes and regulations place a particular strain on midsized manufacturing firms because they do not have the capacity to move liabilities offshore and are too big to attract major government exemptions. However, midsized manufacturers do find some innovative solutions in the R&D Tax credit.

Read the full report.