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Full Steam Ahead for a Booming Middle Market in the First Quarter of 2018

April 26, 2018, 08:01 AM
Filed Under: Economic Commentary

Middle market companies have been firing on all cylinders in the first quarter of 2018. Nearly three-quarters (72 percent) of middle market businesses reported improved company performance compared to one year ago—a new high—and a record-setting number of companies (77 percent) reported year-over-year revenue growth, which climbed to an impressive 8.4 percent. Those numbers come from the 1Q 2018 Middle Market Indicator (MMI) released today by the National Center for the Middle Market (NCMM). This remarkable performance, along with a 6.3 percent increase in employment in the past year, underscore the critical role the middle market sector plays in America's economic growth.

Given the high levels of confidence middle market companies have in their local economies (94 percent), as well as the national (87 percent) and global (82 percent) economies, it's no wonder they expect the good times to continue to roll. The survey reports that two-thirds of middle market businesses anticipate increases in revenue over the next 12 months, and almost half (46 percent) plan to add workers in the coming year.

Despite these sunny employment projections, properly staffing companies is a growing concern as businesses expand and the labor market continues to tighten. According to the survey, middle market companies say that finding and retaining workers with the right skills and developing their current workforce are among their most pressing challenges, with more than half (54 percent) reporting that these talent issues will potentially present problems for their businesses in the year ahead.

"In our current labor market, finding employees is difficult—so keeping the ones you have becomes critical," said NCMM Executive Director Thomas A. Stewart. "Companies tell us they are considering increasing salaries, offering additional benefits, and investing in training. These all come at a cost and more than one in four middle market companies are worried about escalating costs in the year ahead."

Unlike rising apprehension over talent, middle market concerns over taxes are subsiding. The recent tax reform bill signed into law in December 2017 reduces the corporate tax rate and changes the accounting treatment of capital expenses. This new tax landscape appears to have spurred companies toward further capital investments, with three out of five saying they intend to move up their capital spending plans as a result. However, most of these changes will be modest – only 6 percent of companies expect to accelerate investment to a significant degree. There also seems to be a lack of awareness about the tax-law changes, especially among smaller middle market companies.

"Limited awareness of the new tax law's impact on capital spending may be preventing companies from making investment changes, particularly for businesses at the lower end of the middle market," said NCMM Managing Director Doug Farren. "A surprising 43 percent of small middle market firms are unaware of how the new tax law will affect their capex, while two-thirds of larger firm are aware and more likely to make changes based on the new tax law provisions."

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 click here.

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