Employment and revenue growth in the U.S. middle market during the first quarter of 2014 underscore optimism among business leaders and executives in the space, according to the most recent report from the National Center for the Middle Market.
The 200,000 businesses that comprise the U.S. middle market are an important indicator of overall economic health. With significant presence in states such as California, New York, Ohio, Illinois and Texas, they account for about $10 trillion in annual revenues, or about one third of the country’s gross domestic product. Combined these companies have more output than all of Germany.
Middle market revenue saw 6.5 percent revenue growth over the past 12 months, the best numbers since the first quarter of 2013.
There was a similar pattern in jobs. Middle market companies saw a 3.7 percent increase in payrolls compared to 2.6 percent for S&P 500 companies or startups, which clocked in with 2.1 percent job growth, the report said.
The National Center for the Middle Market produces the report in collaboration with The Ohio State University Fisher College of Business and GE Capital.
“Overall, what we’re seeing is 60 percent of the executives surveyed say they have improved economic performance compared to last year, and only 9 percent said business was less good than last year,” said Tom Stewart, executive director of the Center, in a video update on the report. Going forward, nearly the same number—59 percent—said things were going to get better, he said.
Survey respondents are most confident in local economies (81 percent), ranking them above their national (64 percent) and global (57 percent) counterparts. In fact, confidence in economies at the local level is at an all-time high, according to the report.
Still, the picture is not entirely rosy, as Stewart says. “[Firms] face a considerable number of challenges,” he said. “Middle market executives continue to report a lot of concern about uncertainty in government policy and about health care costs.”
The survey asked executives at middle market firms to describe their interaction with challenges such as health care costs, uncertainty over the impact of government action, attracting and retaining talent, and access to capital. Respondents identified health care costs as the No. 1 challenge they faced in the nine quarter history of the report. However, the extent to which they found it challenging has declined slightly since this time last year.
“The other concerns that are rising to the surface for middle market companies have always been there—but are now rising as their top concerns—are some bread and butter business concerns,” Stewart said. “Can we get the talent? Can we manage our labor costs? And how do we get an even sharper customer focus?”
When asked about international operations, two out of three middle market firms said they are conducting business within U.S. borders. Firms that do have global projects underway say a minority of their operations reside in markets outside North America.
Despite the growing optimism, however, these executives are still pretty cautious with an extra dollar. Sixty-four percent said they would invest that extra dollar while the other 36 percent said they would keep it on-hand.