Increasing Confidence Among U.S. Middle Market Companies is Fueling Increased Investment and Employment Growth

COLUMBUS, Ohio, July 24, 2013 /PRNewswire/ -- Successive quarters of strong performance by the nation's nearly 200,000 middle market companies is fueling increased confidence in the national and global economies.  According to the latest Middle Market Indicator (MMI), a survey of 1,000 middle market executives released today by the National Center for the Middle Market (NCMM), revenue growth is stabilizing above five percent and employment growth projections have increased 20 percent over last quarter.  The NCMM is a partnership between The Ohio State University's Fisher College of Business and GE Capital.  The full survey results are available at http://www.middlemarketcenter.org/2q-2013-middle-market-indicator.

According to this quarter's MMI, mean revenue growth has stabilized above five percent, reaching 5.8 percent this quarter and projected at 5.1 percent for the year ahead.  The highest growth gains are anticipated in the services and financial industries at six and 6.2 percent respectively.  Retail trade forecasts the lowest revenue gain at 4.2 percent, which is still well above the S&P 500's estimated revenue growth of 1.2 percent.

As revenue growth stabilizes significantly above the national average, employment growth is projected to increase 2.5 percent, which represents a 20 percent increase in forecasts compared to 2.1 percent for the first quarter of 2013.  At this rate, the middle market will generate 70 percent of all new U.S. employment this year.  Employment growth projections among middle market manufacturers were particularly significant, increasing from 1.2 percent in the first quarter to 2.2 percent.  Furthermore, 43 percent of all middle market companies project employment increases over the next 12 months, compared to 38 percent of companies last quarter.

"Middle-market business leaders are becoming more optimistic about the U.S. and global economies, and are projecting current revenue growth within their own businesses to continue in the near future," said Dan Henson, president and CEO of GE Capital, Americas.  "With a developing sense of confidence, executives are beginning to reinvest in their businesses and hire additional staff.  As the leading lender to the middle market, we're committed to supporting this critical sector of the economy."

Confidence on the Rise

The confidence of middle market executives in the national and global economies experienced the greatest gains since the survey commenced in 2012.  A record 48 percent of executives reported confidence in the global economy, compared to 22 percent last year.  Further, nearly two-thirds of middle market executives are at least partially confident in the U.S. economy, compared to 50 percent one year ago.  Confidence among executives in the services, manufacturing, wholesale trade and construction industries was particularly high. 

This growing sense of confidence in the economic outlook at the national and global levels is encouraging executives to take additional growth-related initiatives through new investments.  One year ago, middle market companies were split between whether to invest or hold onto extra cash, at 51 percent and 49 percent respectively.  This quarter, nearly two-thirds of middle market executives plan to invest rather than hold on to extra cash.

"Our latest survey revealed that companies who experienced growth over five percent in the past year are more likely to consider making acquisitions in the future," said Dr. Anil Makhija, Academic Director for NCMM.  "These companies are making critical investments in the people and technology required to increase productivity and perpetuate growth into the future.  It is encouraging to see this large segment of the economy settle into a stable and optimistic growth trajectory, where increased investment will fuel additional revenue and employment gains well into the future."

Global Market Participation

Increasing confidence in the global economy, coupled with the prospect of significant new trade deals with Europe and Asia, could drive further growth in the middle market.  According to the MMI, 55 percent of middle market companies currently participate in the global economy, while 45 percent operate entirely within the U.S.  Middle market companies who do participate in the global market indicate they are using products and services imported from foreign markets; exporting goods and services to foreign markets; and utilizing foreign markets in their supply chains. 

Barriers to Growth

This quarter's MMI reveals that the cost of health care remains the top challenge for middle market executives, with nine in ten identifying this issue as their top concern.  More than 58 percent identified health care costs as "highly challenging."  This issue has topped the list over the last five quarters of the MMI survey. 

"The concern here is that enduring challenges related to health care costs could hinder further growth among middle market companies," according to Dr. Anil Makhija.  "As our data indicates, the executives most worried about healthcare also project lower revenue."

Survey Methodology

The MMI surveys 1,000 executives (CEOs, CFOs, and other C-Suite executives) from the middle market's nearly 200,000 companies, focusing on their business capabilities and performance, growth drivers, and economic outlook.  The survey is weighted to accurately reflect the size and geographic distribution of this sector, which includes companies with revenues between $10 million and $1 billion.

The quarterly MMI tracks responses on the following topics:

• Gross revenues performance
• Overall company performance
• Employment performance
• Expected 12-month gross revenue and employment growth
• Confidence in the global economy, U.S. economy and local economy
• Key business challenges
• Top areas for investment dollars
• Perceptions on topical issues and challenges relevant to the U.S. middle market

The survey is conducted by the independent research firm RTi on behalf of the NCMM.

Background – the U.S. middle market:

The middle market, which represents one-third of non-government U.S. GDP and generates more than $9 trillion in combined revenues annually, is a source of 43 million jobs, accounting for nearly 34 percent of total U.S. employment.  This sector is made up of nearly 200,000 businesses with revenue between $10 million and $1 billion.  Between 2007 and 2010, U.S. middle market firms created 2.2 million jobs while businesses with revenues more than $1 billion showed cumulative job losses.

The middle market represents the fifth largest economy in the world, behind Japan and ahead of Germany, in terms of GDP.

The median age of a middle market business is 31 years, compared to 35 years for large companies and six years for small businesses.

Background – National Center for the Middle Market:

The National Center for the Middle Market (NCMM) was founded in 2011 in partnership with GE Capital and is located at The Ohio State University's Fisher College of Business. The Center is the leading source of research on the U.S. middle market economy. Learn more at www.middlemarketcenter.org.

Background - GE Capital:

GE Capital is one of the world's largest providers of credit and expertise. For more than 1 million businesses, GE Capital provides financing to purchase, lease, and distribute equipment, as well as capital for real estate and corporate acquisitions, refinancings, and restructurings. GE Capital is a leader in a number of industries, from airlines, health care and energy financing to fleet, franchise and middle market corporate finance. For approximately 80 million consumers, GE Capital offers credit cards and retail sales finance programs. GE Capital is an extension of GE's rich heritage of building and supporting growth, providing customers with insight, knowledge, and expertise in addition to financing. Learn more at www.gecapital.com.

SOURCE National Center for the Middle Market