FREE MEMBERSHIP Includes » ABL Advisor eNews + iData Blasts | JOIN NOW ABLAdvisor Gray ABLAdvisor Blue
 
Skip Navigation LinksHome / Articles / Read Article

Print

Middle Market Economy Demonstrates Stable Growth; Challenges Persist

Date: Jan 28, 2016 @ 07:55 AM
Filed Under: Economic Commentary

Following a quarter of strong revenue growth, U.S. middle-market companies reported stable growth to close 2015, even as rate of increase in employment flattened and confidence in the economy fell. These findings headline the National Center for the Middle Market's (NCMM) Q4 2015 Middle Market Indicator (MMI), the sixteenth in a quarterly series of reports designed to uncover the performance and outlook of the middle market and the top trends affecting these businesses.

Middle-market companies reported year-over-year growth of 6.1 percent in Q4 2015, down from 7.2 percent year-over-year growth in the third quarter. Middle-market employment growth followed a similar pattern, declining to 3.6 percent year-over-year growth in Q4 2015 from 4.1 percent the quarter before. 

"Although we're currently seeing a slowing down in revenue and job growth, as a whole 2015 was a very strong year for the middle market with company performance remaining at the same high level as it was at the end of 2014," said Thomas A. Stewart, Executive Director, NCMM, a partnership between GE Capital and The Ohio State University Fisher College of Business. "Middle-market businesses are tempering hiring expectations because of declining confidence about economic conditions—particularly the global economy. But they are preparing their business for growth in the year to come. To that end, many are making innovative changes and are investing in research and development."

Middle market companies – defined as companies with annual revenues between $10 million and $1 billion – account for roughly one-third of total employment and GDP in the U.S. and generate $10 trillion in annual revenue. If it were a stand-alone economy, the U.S. middle market would be the fifth largest economy in the world, between Germany and Japan.

NCMM's Middle Market Indicator surveys 1,000 middle market C-suite executives from all industries on a quarterly basis to ascertain their performance and obtain their thoughts on economic conditions.

"The survey found that the smallest revenue segment of the middle market, those with $10 million to $50 million, had the largest slowdown in mean total revenue growth year-over-year, from 6.8 percent in Q3 2015 to 4.7 percent in Q4 2015, which is a big reason for the lower revenue growth of the overall middle market," Stewart added.

The Outlook on Growth

Half of middle-market firms surveyed expect revenue growth in the coming year, which is up one percent from Q3 2015. Meanwhile, only 32 percent of middle-market firms expect to increase workforce in the coming year, down slightly from 36 percent in Q3 2015 and a plunge from 52 percent in Q4 2014.

Even as firms dilute their hiring expectations for the year ahead, expanding and improving upon talent acquisition and retention is top of mind for middle-market companies. Of the companies surveyed, 45 percent expressed that employee retention is their top internal challenge. When asked about the most important area to focus on in terms of employment, 43 percent of firms cited wages, with an additional 34 percent citing the need to establish flexible working arrangements.

Timely Influences: Interest Rates, Election

Leading up to the Federal Reserve's raise on interest rates in December 2015, middle-market executives were asked if their business would be affected by rising interest rates. Forty-five percent responded that interest rates would affect their business, with the majority saying that the cost of new debt for growth opportunities would be the main business function impacted. The middle market sectors that most strongly felt a rate hike would have an impact on their businesses were retail trade and financial services, with 55 and 56 percent respectively.

Political uncertainty has emerged as well. A majority (53 percent) of middle-market firms think that the upcoming presidential election will have an impact on their 2016 business outlook. Within that group of companies, a slight majority (52 percent) stated that the election weakens their outlook.

When asked to state the greatest challenge posed by millennial employees, 38 percent of middle-market firms responded that it is the generation's perceived lack of commitment to the job – the top answer – and 25 percent said the biggest challenge is attracting and hiring talent in this generation.

Challenges Ahead

Middle-market companies outlined other key points they consider to be challenges for the next twelve months. Externally, 29 percent of middle-market firms reported that their biggest challenge in the next twelve months is general business challenges, such as changing demand and executing expansion plans. Government actions and regulations (19 percent) and business competition (18 percent) remain at the forefront for companies as well.

Wavering Confidence in Economy

In Q4 2015, middle-market companies' confidence in their local economy dropped to 76 percent, down from 80 percent in Q3 2015. Meanwhile, their confidence in the U.S. middle market dropped to 67 percent from 72 percent and their confidence in the global economy fell slightly to 47 percent from 49 percent in Q3 2015.

When asked what economic trends most affect their confidence in the global economy, 22 percent of middle-market companies cited domestic political uncertainty, 20 percent chose homeland security/threats worldwide and 17 percent said cybersecurity threats.

The survey shows that U.S. economic trends affect middle market confidence in the global economy significantly more than international influences such as weakness in Eurozone economies (13 percent) and the volatility in the Chinese equity markets (13 percent). However, 23 percent of middle market companies that source 20 percent or more of their revenue from outside the U.S. view the weakness in the Eurozone economies to be the economic trend that has affected their global confidence; likewise, 23 percent of this group view cybersecurity threats to be the most impactful on their assurance in the global economy.

For additional survey data and infographics including in-depth looks at regional variations, hiring/talent acquisition efforts and other business concerns among middle market companies, visit http://www.middlemarketcenter.org.

The MMI surveys 1,000 executives (CEOs, CFOs and other members of the C-Suite) from the middle market each quarter to examine topics related to business capabilities and performance, growth drivers and economic outlook among other topics. This quarter's MMI was fielded December 3 to December 11, 2015. It is weighted to accurately reflect the size, industry-wide and geographic distribution of this sector, which includes companies ranging from $10 million to $1 billion in annual revenue. The survey is conducted by RTi Research on behalf of the National Center for the Middle Market.

The National Center for the Middle Market was founded in 2011 in partnership with GE Capital and The Ohio State University Fisher School of Business. The Center is the nation's leading research institution dedicated to helping middle market companies to be more competitive through research, advocacy and educational initiatives. 

Comments From Our Members

You must be an ABL Advisor member to post comments. Login or Join Now.