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Middle Market Confidence in Economy Hits Record High; CAPEX in Focus

July 24, 2014, 07:00 AM
Filed Under: Economic Commentary

Business leaders representing the nation’s nearly 200,000 mid-sized firms are bullish about the U.S. economy, fueled by consistently strong revenue growth. In fact, middle market companies grew revenue over the past 12 months at 6.6 percent, nearly twice as fast as the S&P 500 at 3.4 percent. This strength boosted executive confidence in the U.S. economy to a record high of 68 percent, according to the latest Middle Market Indicator (MMI), a quarterly survey of 1,000 C-suite executives conducted by the National Center for the Middle Market (NCMM). These results suggest continued growth for the nation’s economy despite the first-quarter drop in U.S. gross domestic product (GDP).

The U.S. middle market, made up of businesses with revenue between $10 million and $1 billion, contributes one-third of non-government U.S. GDP and accounts for 45.6 million jobs, or one-third of private U.S. employment. Employment growth for mid-market firms over the past 12 months was 3.2 percent, which added an estimated 750,000 jobs to U.S. payrolls so far in 2014. If mid-market companies deliver on projected job growth of 3.3 percent, the sector will create 59 percent of all new jobs in 2014.

“For the second quarter in a row, U.S. middle market companies turned in exceptionally strong growth in revenue along with solid gains in employment,” said Thomas A. Stewart, Executive Director, NCMM, a collaboration between GE Capital and The Ohio State University Fisher College of Business. “Mid-market executives seem to be determined to translate revenue increases into solid productivity improvements by holding the line on investments in capital and labor both.”

According the latest MMI, 70 percent of mid-market executives expect to see revenue growth in the next year, an 11 point jump from the prior quarter. Furthermore, about a quarter of these executives expect to see revenue growth above 10 percent. This confidence boosted revenue growth projections to 5.8 percent, lifting the outlook by $130B compared to the prior survey.

Mid-sized firms continue to invest in future growth, with 63 percent planning to put money back into their businesses. Business executives are focusing their investments on capital expenditures for plant and equipment as well as information technology.

Industry Bright Spots

The manufacturing and health care sectors saw increased performance over the last year. Seventy-two percent of mid-sized manufacturers reported higher revenue growth, with an average year-over-year growth rate of 7.3 percent, and 68 percent of health care executives said their revenues increased, a jump of 16 points.

Looking ahead, four mid-market industry sectors are particularly optimistic about their prospects over the next 12 months, with three out of four saying they will growth revenue well above the national average: construction (8.1 percent), services (8 percent), manufacturing (7.2 percent), and financial services (6.7 percent). Mid-sized construction firms plan to hire new employees at a rate of 5.1 percent over the next 12 months.

To read the full 2Q 2014 Middle Market Indicator report, click here.

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