Only time will tell what the Donald Trump administration really means for the middle market. But if the first quarterly barometer taken since November’s historic U.S. presidential election is any indication, business leaders — whether reacting to more positive economic indicators or anticipating a more business-friendly administration — are very optimistic about the future. In fact, confidence is at the highest level since the survey started more than five years ago.
A look at the numbers
Confidence in local economies is highest at 86%. Confidence in the global economy is lower amidst uncertainty, but still increased to 65% — up 9 percentage points from the previous quarter and 18 points from the same time last year.
When it comes to the U.S. economy as a whole, 81% of businesses feel confident, which is driving organic growth. Forty percent of respondents said it is either extremely likely or very likely that they will introduce a new product or service, or expand into a new U.S. market in the next year. Only 25% said an acquisition is extremely likely or very likely.
Is it déjà vu?
There have been other periods in the business cycle where high confidence has led to similar exuberance. The recent run-up of the stock market has some companies wondering if the bubble will burst.
Middle-market firms are reporting average revenue growth of 6.7% for the year. Compare that with most figures for overall GDP growth (generally under 2%). Because growth for the middle market significantly exceeds overall growth for the economy, this suggests that the confidence spike is supported by real results versus inflated expectations (a bubble).
Confident but …
Even though confidence is high, the survey did reveal some uncertainty. There is an uptick in the number of firms citing the government as an area of concern for their business — specifically, the many unknowns about how a Trump administration and Republican Congress will create change through policy.
Follow updates on policy developments as they happen on Political Pulse
Businesses are also concerned that an inability to recruit employees with the right skill sets is going to limit their ability to grow. Find out how middle-market businesses are approaching talent recruitment and development.
The final word
Business confidence has historically been one of the best indicators of future growth. Unbridled confidence creates bubbles. Confidence supported by real results, as reflected in this quarter’s survey, drives smart investment and innovation — the true engines of growth.
Read the full Q4 Middle Market Indicator report from the National Center for the Middle Market