3Q 2013 Middle Market Indicator

U.S. middle market companies extended their string of solid revenue and employment gains during the third quarter of 2013 and anticipate those trends will continue over the next 12 months, albeit at a decelerating pace. Though markedly improved from the same period a year earlier, revenue increases, employment gains and confidence in the global and local economy all appear to have hit plateaus amid mounting concerns – indicating that business conditions for this critical segment of the U.S. economy have stabilized.

 
 

Other Key Findings:

Companies extend performance gains

Revenue growth continued during the third quarter as 62% of middle market companies reported top-line improvements during the past 12 months. That’s up from 51% in the third quarter of 2012, flat compared to the 60% in the prior quarter. The mean revenue growth declined to 5.5%, its lowest gain since hitting that number a year earlier. Companies also expect performance to improve in 2014, with 60% projecting revenue to grow. These companies expect increases to be 4.4%. That’s down from 5.1% in the second quarter of this year, but still an increase from the 3.7% forecast in the previous year.

3Q 2013 Revenue Growth

Employment growth continues, but could slow

In the third quarter, four of 10 companies said they added workers, on par with results over the previous quarter, and up from 35% a year earlier. These companies reported mean job growth of 2.8%, up from 2.2% a year earlier and 2.6% in the second quarter. The largest middle market companies fueled the gains, with 45% of respondents in the $100 million to $1 billion segment adding workers. Looking ahead, the middle market expects hiring to slow to 2.1%, down from 2.5% a quarter ago. The core middle market, representing firms with $50 - $100 million in revenue, expects hiring to slow to 1.5% in the year ahead, down from 2.6% in just three months.

3Q 2013 Employment Growth

Confidence has leveled off

Confidence measures leveled off in the third quarter. While considerably higher than a year ago, the steady increases in confidence for the global, U.S. and local economies has halted, though the numbers have not declined. Still, 48% of surveyed companies report they are somewhat confident in the global economy. That’s unchanged from the second quarter of 2013, but up from 29% a year earlier. Almost two-thirds of respondents said they are least partly confident in prospects for the U.S. economy, up from less than half a year earlier. A resounding 77% of companies are confident or somewhat confident of their local economies, up from 66% a year earlier, though down slightly from 79% in the prior three months.

3Q 2013 Ecomonic Confidence

Capital investment strong, but moderating

Middle market companies plan to invest additional capital, rather than hold on to excess cash by a margin of 61% to 39%. That’s up from 51% planning to invest a year earlier. The percentage of companies likely to invest is down for the second consecutive period, from 63% and 64% in the previous two quarters respectively. Companies in the $50 - $10 million segment are more likely to hold cash, though a growing number of smaller companies plan to save cash for making financial investments down the road.

3Q 2013 Capital Investment

Challenges persist

Domestically, the impact of healthcare legislation continues to concern almost all middle market executives. Leaders of middle companies also expressed concern about another fiscal cliff. Globally, concern about escalating tensions in the Middle East and sociopolitical unrest in key developing markets (including Brazil and India) have combined to put a cloud over potential growth.

3Q 2013 Key Challenges

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