Middle market Q3 2016: Balancing revenue and hiring

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Grant Thornton LLP Middle Market Indicator Q3Middle-market businesses are reporting revenue and employment growth.
Learn how to balance both and sustain long-term growth in our summary of the National Center for the Middle Market's Q3 Middle Market Indicator.

Hiring is rising along with optimism. It’s a good time to be a middle-market company. Revenue growth rates are healthy, and executives are demonstrating optimism about profits and the economy by stepping up hiring. This is particularly true for businesses in services industries.

This is the sunny side of the current Middle Market Indicator, the quarterly publication produced by the National Center for the Middle Market, which Grant Thornton LLP is proud to co-sponsor with SunTrust and Cisco.  

The slightly cloudier report is that the manufacturing, wholesale and retail trades are not enjoying the same upswing. They rely in part on exports, which are facing global headwinds from a strong dollar and lackluster growth overseas, particularly in Europe.

Innovation is expected to follow the hiring jump. Company growth is driven by investing in market expansion, innovation and talent, in that order. But, the report notes, they’re not mutually exclusive drivers. Talent is critical to the other two investments. In fact, according to this quarter’s report, talent is the No. 1 lever for the No. 2 driver: innovation.

And indeed, increasing their employee numbers has been a priority for middle-market leaders, with the rate of hiring picking up for a year. Four quarters ago, hiring was at 3.6%; this quarter, it was at 4.9%. Three-fourths of the new jobs are full-time, and just 2% are temporary or seasonal. As for industries doing the bulk of the hiring, construction led the way, followed by services and health care. Notably, all are automation-resistant. The workers they hired are mostly revenue-generating — 63% of companies say they’ve added jobs in operations, 51% in marketing and sales, and 36% in IT.

While expanding into new markets is a top consideration for optimistic middle-market managers, there is great respect for the connection between the other two investment drivers. The majority — 70% — of the core middle market ranks attracting and retaining innovative people as most critical to innovation.

Keep a revenue-hiring balance. It is important to remember that employment growth without sufficient revenue growth is not sustainable. Exuberance in hiring can create a revenue imbalance. As such, high-growth businesses should examine their operations, and identify opportunities to improve overall performance and processes. These efficiencies can then be used to support hiring and position the business for long-term growth.