Middle-market executives are projecting new levels of optimism about economic growth, suggesting they are shrugging off the shocking Q1 GDP numbers—which indicated the economy shrunk by 2.9 percent—and charging forward despite these figures.
Our latest Middle Market Indicator reveals that 70 percent of middle market executives—which lead approximately 200,000 U.S. companies with annual revenues between $10 million and $1 billion—project that their revenue will increase through the next year, after 69 percent reported revenue growth in Q2.
The broader economy has felt some uncertainty following the Q1 GDP drop, but the middle market, according to data, still remains confident about its growth trajectory. Should current employment growth continue, the middle market is projected to create 59 percent of all new American jobs in 2014.
Here are those numbers in perspective: The middle market is growing revenue at 6.6 percent a year, which is nearly twice as fast as the S&P 500, with reported revenue growth of 3.4 percent.
Continued growth is driving executives’ optimism and this growth is seen throughout the industries that make up the middle market in notable ways. Positive reports from the manufacturing, services, construction, health care, and financial services industries are catalyzing this growth throughout the sector.
Middle market executives are exhibiting record confidence in the U.S. economy, with 68 percent reporting they are confident in their national economy.
While the middle market continues to grow, the greatest challenge it faces are rising health care costs. Eighty-seven percent of executives report the cost of health care as a highly or somewhat challenging issue affecting the growth of their business. Fifty-four percent of executives reported the cost of health care as highly challenging—up from 46 percent in Q1.
Spotlight on Texas
Texas’s economic boom, driven primarily by rapid growth in the energy market, has affected the already optimistic Texan middle market. Eighty-nine percent of Texas middle market companies project revenue will grow at a high of 9.2 percent. In Q1, 67 percent of executives projected revenue would grow, meaning more than 20 percent of last year’s Texas executives are feeling confident about the growth of their companies.
In Q2, Texas middle market companies led the nation and delivered the fastest revenue and employment growth over the past twelve months. Texas mid-sized companies experienced double-digit revenue growth of 10.6 percent, versus 6.6 percent nationally. Likewise, these firms created jobs at a rate of 7.3 percent compared to their national peers at 3.2 percent.
Texas middle market executives strongly believe the growth in the Lone Star state will continue, with 97 percent of executives reporting confidence in their local economies, compared to 77 percent nationally. This confidence in their local economy spurs investment in their companies, with 81 percent of executives reporting likelihood to invest. As with gross revenue projections, this number spiked approximately 20 percent from Q1 to Q2. In Q1, 63 percent of Texas mid-market executives reported they would invest extra revenue.
In general, middle market companies are still feeling a consistent set of challenges despite optimism about their revenue. Finding and retaining talent, uncertainty around government actions, and general regulatory constraints remain critical challenges for middle market executives and business leaders.