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Middle Market Firms Surging in Leading Industry Sectors

September 09, 2016, 07:43 AM
Filed Under: Economic Commentary

The growth of U.S. middle market firms (companies between $10 million and $1 billion in revenues) is outpacing the national average, with an 87% increase in number of firms, a 103% surge in employment, and a 100% rise in revenue since 2011, according to the latest Middle Market Power Index: A Detailed Look at Top Industries from American Express and Dun & Bradstreet.

An industry sector analysis of this middle market growth can help uncover larger economic trends, which have implications for workforce development and economic investments. Within the sectors that include most middle market firms – manufacturing (18%), wholesale trade (17%), and business services (11%) – several industry subcategories are fueling the growth in number of firms since 2011:

  • Business services – Legal services (284%)
  • Manufacturing – Industrial, commercial, or computer equipment (163%)
  • Wholesale trade – Durable products (160%)

The previous Middle Market Power Index: Fueling the Nation’s Economic Growth found that middle market companies are powering the U.S. economy – as much as 53% of the net new jobs over the past five years have come from middle market companies. The latest report found that the subcategories experiencing the strongest employment growth are generally also undergoing the strongest revenue growth. Two areas in particular, legal services and durable products, have led their industries in all three measures, indicating these are becoming more prominent in the American economy.

“Middle market firms are leading business growth in the United States, outpacing both small and large-sized firms,” said Jeff Stibel, vice chairman of Dun & Bradstreet. “More specifically, the service industry continues to lead middle market growth in terms of revenue, employment and number of firms, reflecting the larger trend in the U.S. moving from a manufacturing-based to a service-driven economy.”

Generational Differences Among Middle Market Firms

As our economy becomes more service and technology focused, it stands to reason that the younger firms entering the middle market are not going to be producing the same products or services as companies that were founded over 50 years ago.

Manufacturing is one industry where this generational difference is particularly strong. While it remains a foundational sector regardless of firm age, the types of products being manufactured differ between younger and older middle market firms. Middle market firms that have been in business for 50 years or more are much more likely than their youngest counterparts (those in business less than 10 years) to be making fabricated metal products – 17% vs. 10%. The youngest middle market manufacturing firms are instead much more likely than those in business 50 years or more to manufacture either electronic equipment or components (11% vs. 5%) or chemical products (12% vs. 5%). The shift in types of products being manufactured suggests how demand for certain goods has changed over time.

Although manufacturing is the most prevalent middle market industry, business services is seeing significant gains as well. Middle market firms that have been in business 10 years or less are more likely to be in business services (15%) compared to those that have been in business 50 years or more (5%). Within business services, the subcategory of legal services has been driving growth in number of firms, employment, and revenues and is dominated by middle market firms that have been in business 50 years or more. These older firms represent 25% of middle market legal services companies, compared to 2% of middle market legal services firms that have been in business less than 10 years. This can be an indicator that, while legal services have led growth in this sector, it takes much longer for firms in this industry to scale.

“Middle market companies are not only driving the national economy in terms of revenue and employment growth, but the most transformative middle market industries are shaping the overall direction of our economy,” said Brendan Walsh, Executive Vice President, U.S., American Express Global Commercial Payments. “The success of younger manufacturing companies in the middle market is a key indicator of how technology is influencing and guiding the future of the industry, while the growth of business services as a focus for younger middle market companies reflects the strengthening knowledge economy.”

Read the full Middle Market Power Index report here.

American Express and Dun & Bradstreet will release subsequent Middle Market Power Index reports, which will explore other areas of opportunity unique to middle market firms.

Study Methodology

This report is based on an analysis of all of the U.S. firms in Dun & Bradstreet’s commercial databases between March 2011 and March 2016: (1) a virtual census of all of the commercially active businesses in the United States (defined as firms that have obtained a D-U-N-S® Number and that sell and receive goods and services and utilize credit transactions in their business); (2) their credit scoring archive database, which collects and models business commercial activity and business financial strength. All subsidiary and business establishment data are combined; only enterprise-level data (top of the business family tree, or Ultimate D-U-N-S® Number firms) are reported. Additionally, public sector entities are excluded.

Dun & Bradstreet grows the most valuable relationships in business. By uncovering truth and meaning from data, we connect customers with the prospects, suppliers, clients and partners that matter most, and have since 1841. Nearly ninety percent of the Fortune 500, and companies of every size around the world, rely on our data, insights and analytics.

Through its Global Commercial Payments division, American Express offers a suite of payment and lending products that help businesses and organizations of all sizes gain financial savings, control and efficiency. Global Commercial Payments provides solutions for travel and everyday business spending, cross border payments, global currency solutions, and business financing.

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