Mid-sized businesses, representing roughly 40% of the U.S. economy and one-third of its workforce, registered the third consecutive quarter of record-high performance in the third quarter of 2018. Middle-market executives signaled a continuing robust forecast for the next six months, putting 2018 on pace to be the best year on record for the middle-market index.
The RSM US Middle Market Business Index (MMBI), based on data from companies that earn $100 million to $3 billion annually, posted a composite score of 134.4, a slight 0.1-point decrease from last quarter’s 134.5. (A reading above 100 indicates an expanding middle market.) More than half of the leaders surveyed reported the general economy improved somewhat or substantially over the quarter, and their increasing expectations across revenues, net earnings and compensation imply sustained growth during the final quarter of 2018 and into next year.
“Middle market businesses are flourishing in what is one of the most robust periods of growth during the current business cycle,” said Joe Brusuelas, RSM US LLP chief economist. “Any hint of uncertainty they indicated previously hasn’t prevented companies from expanding in these strong conditions. And not only that, companies are making employment and compensation increases to set them on track for sustained growth in the year ahead.”
Nearly half of business leaders increased hiring in Q3 2018, and according to the report, 53 percent expect to increase the level of hiring over the next six months. Gross revenues appear strong, with 67 percent of business leaders expect gross revenues to increase in the next 180 days.
“It’s encouraging to see such optimism and continued growth from the middle market, which represents more than one-third of U.S. jobs,” said Neil Bradley, executive vice president and chief policy officer for the U.S. Chamber of Commerce. “Policymakers can support the continued optimism of middle market business leaders by pursuing free, fair, and open trade. Such policies will help our economy, and this vital sector, continue to grow.”
Hiring, Capital Expenditures May Slow
Compared to last quarter, more executives reported hiring levels will decrease over the next six months (10 percent versus 6 percent) due to incredibly tight labor conditions, with U.S. unemployment remaining steady at 3.9 percent in August and there being more job openings than people on unemployment. There simply aren’t enough people to fill the jobs the new economy is creating forcing middle-market employers to seek technological advances and process improvements so that resource needs are met despite the difficult hiring environment.
“Middle market employers have struggled, like other businesses, to attract qualified talent in this booming economy,” Brusuelas said. “Their plans to slow hiring could indicate they are testing new strategies to make use of their existing employee base – and investing in technology should be a priority to keep pace with the larger organizations that are taking advantage of automation, machine learning and artificial intelligence to increase efficiency.”