Market Overview

Middle Market Workforce Increases 2.2%, Adds 950,000 Jobs Q3 Data Shows

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COLUMBUS, Ohio--(BUSINESS WIRE)--

The National Center for the Middle Market (NCMM) today announced that middle market companies increased headcounts by 2.2%, about 950,000 jobs, over the last 12 months, outpacing the overall economy which grew employment by 1.7%. Middle market firms also grew revenues in the past 12 months at more than three times the rate of S&P 500 firms, growing at 5.5% versus 1.6%.

However, the new research from the NCMM at The Ohio State University Fisher College of Business also finds a softening in expectations for middle market firms. Over the next 12 months, projected employment growth has dropped to 1.3%, and projected revenue growth has fallen to 3.7%. These forecasts are important because the middle market constitutes nearly one-third of the private sector GDP and employment in the U.S.

“Though slowing, the middle market continues to create jobs and grow revenue despite weak confidence in both the national and global economies,” said Dr. Anil Makhija, academic director of the National Center for the Middle Market. “However, this quarter's indicator shows that serious challenges for middle market companies are taking their toll, imposing lower expectations for employment and revenue growth in the year ahead. This is concerning for the U.S. economy as a whole given the middle market's significant contribution to private sector employment and GDP.”

Revenue growth has exhibited a clear pattern of decline over the past three quarters of this year. For the previous 12 months, average revenue growth fell from 6.9% in Q1, to 6.1% in Q2, and now 5.5% in the Q3 survey. The percentage of middle market executives expressing confidence in the U. S. economy has been low, falling from 15% in Q1 to 12% in Q2, and now to 11% in Q3.

Nevertheless, the latest full year of growth in revenues, going back from the September third quarter survey, shows that the middle market had been growing so far at a faster rate than all but two of the world's twenty largest economies – China and Indonesia.

Despite recent slowing of revenue growth and overall economic concerns, further research from the NCMM shows that the U.S. middle market grew employment at a faster rate than both small businesses and large firms in 2011, and has increased headcounts throughout 2012. Middle market companies grew headcounts four times as fast as large companies last year, adding 1.95 million jobs and increasing overall employment by 3.8% over the previous year. Large companies grew employment by just 0.8%.

The Middle Market Indicator (MMI) is a quarterly survey of 1,000 middle market executives, published by the NCMM, a partnership between The Ohio State University Fisher College of Business and GE Capital. The survey examines the health and outlook of middle market businesses by analyzing capabilities, performance, growth drivers and overall economic outlook.

Other Q3 MMI highlights Include:

  • More than 70% of middle market executives said they were not confident or somewhat not confident about global economic prospects. This has improved from 78% in the second quarter.
  • The number of companies who said they would hold cash dropped in the third quarter, from 50% in Q2 to 44% in Q3.
  • Middle market companies expect gross revenue to grow by 3.7% in the next 12 months, a decline from second quarter expectations of 4.8%, and 5.2% for first quarter.
  • A large majority of leaders at middle market companies cited uncertainty about healthcare costs as their major challenge, a persistent concern as healthcare and certain regulations remain in flux.

Global and U.S. confidence remains muted

The middle market overall continues to show a lack of confidence in the global and U.S. economies – driven by concerns over health care costs, the ability to maintain margins, the cost of doing business, and uncertainty regarding government actions. Concerns about the U.S. economy worsened slightly in the quarter: 52% of respondents said they were not confident or somewhat not confident about the domestic economic outlook compared with 50% in the previous quarter.

Next 12-month revenue growth expected to soften

Middle market companies expect revenues to increase by 3.7% in the next 12 months, a decline from second quarter expectations of 4.8% and 5.2% for Q1 expected growth. All three revenue segments within the middle market ($10 million to $50; million, $50 million to $100 million; and $100 million to $1 billion) expect some decline and there was a sharp drop off in the number of firms expecting to grow more than 10%. Only 17% of respondents said they expect double-digit revenue growth compared with 23% in the prior quarter, and 28% in Q1.

Hiring expected to continue, but at lower levels

Despite macroeconomic headwinds and related business challenges threatening growth, middle market companies intend to continue to increase payrolls across all revenue segments and most industry sectors in the next 12 months. Only retail trade is forecasting a small contraction (-0.2%).

Challenges persist

A large majority of leaders at middle market companies cited uncertainty about healthcare costs as their major challenge, a persisting concern as healthcare and other regulations remain in flux. The same concerns were highlighted in Q1 and Q2 surveys. In addition, middle market company leaders expressed a rising concern with their ability to maintain margins and the cost of doing business, indicating that they are having trouble and foresee difficulties in rising prices and passing on increased costs to customers.

“Quarter after quarter, we see middle market firms emerge as the engine of growth in the U.S. economy,” added Dr. Makhija. “As mostly privately-held organizations, these firms can take a longer-term focus, instead of fixating on the next quarterly earnings announcement. They also have longevity, unlike the high failure rate of smaller firms. These characteristics underlie their resilience during difficult times and explain their willingness to add jobs and grow while others do not.” But, Dr. Makhija adds a word of caution, “Regulatory costs and uncertainty of government action may be putting this engine of growth at risk, which may explain the softening expectations.”

Industry breakdown

 

Industry       Mean Total Revenue Growth

(past 12 months)

      Employment Growth

(past 12 months)

        Q3 ‘12     Q2 ‘12     Q1 ‘12       Q3 ‘12     Q2 ‘12     Q1 ‘12
Construction       6.5%     6.5%     1.6%       4.1%     1.1%     -2.7%
Financial services       7.9%     7.5%     7.4%       2.6%     3.6%     1.6%
Healthcare       4.5%     5.1%     9.3%       2.5%     1.9%     3.5%
Manufacturing       6.2%     7.3%     9.8%       2.7%     2.6%     3.4%
Wholesale trade       5.0%     5.1%     6.9%       1.8%     0.7%     0.5%
Retail Trade       4.4%     4.5%     7.9%       0.8%     -0.4%     1.7%
Services       8.3%     8.5%     7.2%       4.6%     4.8%     2.0%
                           

Methodology

The MMI surveys more than 1,000 CEOs, CFOs, and other C-suite executives of America's middle market companies on their businesses, their capabilities and performance, their growth drivers and their overall economic outlook. The survey was designed to accurately reflect the 197,000 U.S. firms in the last census with revenues between $10MM and $1B, the upper and lower limits of middle market annual revenue.

The MMI is published in the third week of the month following the quarter. Third quarter findings of the MMI will be unveiled at the second annual Leading from the Middle conference, a summit for middle market decision makers, taking place on October 24, 2012 at The Ohio State University.

About the Middle Market Indicator

The Middle Market Indicator (MMI) is a quarterly survey of 1,000 CEOs, CFOs and other C-level executives from a geographically balanced sample of leading middle market companies in the United States. The survey examines the health and outlook of middle market businesses by analyzing capabilities, performance, growth drivers and overall economic outlook. The survey is conducted by independent research firm RTi on behalf of the National Center for the Middle Market located at The Ohio State University Fisher College of Business. More survey information can be found at www.middlemarketcenter.org/research.

About the National Center for Middle Market Research

Founded in 2011 in partnership with GE Capital, and located at The Ohio State University Fisher College of Business, the National Center for the Middle Market is the leading source of knowledge, leadership and innovative research on the U.S. middle market economy. Through research, corporate outreach activities and student engagement, the NCMM is dedicated to promoting job creation and growth in the middle market as well as driving the dialogue on this vital economic segment. For more information, please visit www.middlemarketcenter.org.

NCMM
Ann Hamilton, 614-292-7718
Hamilton_847@fisher.osu.edu
or
Edelman for the NCMM
Noelle Hagen, 212-704-4484
Noelle.Hagen@Edelman.com

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