Middle Market Research: COVID-19 and the Middle Market

The coronavirus pandemic will derail middle market performance. But executives believe they have the resilience to recover.

The mighty middle market is not exempt from the dire consequences of the current pandemic. Middle market leaders who were confident, investment-minded, and anticipating revenue and employment growth at the close of 2019 have pulled sharply back on projections. Now, they are preparing for what will surely be a difficult second quarter and, longer-term, the most challenging year faced in more than a decade—a year that could ultimately prove catastrophic for some.

Leaders are worried about the impact on their employees, disruptions to their supply chains, and how to manage cash flow. But they are not without a sense of resilience. Sales are expected to decline dramatically for most, layoffs will increase, and investments will be delayed or cut. Nevertheless, the majority of middle market leaders remain at least somewhat confident in local and national economic conditions and most believe their businesses will be able to operate at full capacity in six months or less once the crisis abates.

The resilience, resourcefulness, and nimbleness of middle market firms—which help them drive the economy in the best of times—will be the same traits that enable them to survive in the worst of times.

Key Findings

Insight 1: The immediate impact of COVID-19 is negative for most—and catastrophic for some—middle market businesses.

The vast majority of middle market leaders see at least some immediate negative impact on business operations, revenue, employment, supply chains, and cash flow as a result of the coronavirus pandemic. Employment—or number of staff—will take the greatest hit in terms of major negative impact. As business leaders struggle to manage through the uncertainty of the situation, four out of five companies expect their workforce to be affected to some degree, and a majority (53%) say the near-term consequences for jobs will be severe. The impact on revenue will be nearly as substantial, with 84% expecting pain and 50% saying 2020 revenue will be seriously affected. A quarter of executives say that the impact of the coronavirus will prove catastrophic for their companies.

Insight 2: Growth projections for both the short and long term have plummeted.

Since December 2019, the trajectory of middle market growth has changed dramatically and will reshape key business decisions in 2020.

In the short term, sales will be hardest hit. Between December 2019 and March 2020, the net percentage change between those expecting an increase in sales in the short term and those expecting a decrease was 46 points, with a fivefold increase in the proportion of firms saying that sales will decrease over the next three months. Demand will also decline, but to a lesser extent. And leaders believe the negative impact on overall business climate will be the least severe.

Looking further out, slower or potentially declining growth rates are likely to persist all year. Middle market executives who, three month ago, anticipated solid revenue and employment growth and had plans for expansion in 2020 are now seeing growth headed in the other direction. In turn, they are putting their investment plans on hold.

Insight 3: Supply chains and access to cash are the most difficult challenges to manage.

The COVID-19 pandemic has upset virtually every aspect of the way companies do business. As middle market leaders work to get a grasp on the issues and find alternative ways of operating through crisis, they struggle the most with handling disruptions to their supply chains, maintaining cash flow, and preserving working capital; approximately a quarter of businesses say they are ineffective at mitigating the problems in these areas of their business. Less hard but still challenging are managing customer experience and operations. However, few businesses are experiencing problems with maintaining communications or keeping up with IT demands, including supporting a remote workforce.

Insight 4: Despite challenges, most middle market companies are confident in their resilience.

Even as sales are dropping, many middle market executives believe underlying demand will persist, and they see opportunity for capitalizing on that demand when the pandemic’s grip on the nation and the world begins to loosen. Most leaders maintain at least some level of confidence in their local and national economies. Though confidence numbers plummeted from three months ago, they currently remain above levels seen coming out of the 2007–2009 Great Recession. More telling, most middle market companies believe that, when the time comes, their recovery will be swift, with four out of five firms saying they will be able to operate at full capacity in six months or less.

About the Research

Two weeks after the World Health Organization declared COVID-19 a pandemic, the National Center for the Middle Market surveyed 260 executives of U.S. middle market companies to take the pulse of the most critical segment of the American economy. All of the survey respondents also participated in the Q4 2019 Middle Market Indicator survey, fielded in December 2019. The results in this pulse report highlight the current and anticipated future impact of COVID-19 on business operations and reflect how the sentiment of middle market leaders has changed over the past three months due to the coronavirus pandemic. Participants completed the survey between March 23 and March 25, 2020.

About the Center

The National Center for the Middle Market is the leading source of knowledge, leadership, and innovative research focused on the U.S. middle market economy. The Center provides critical data, analysis, insights, and perspectives to help accelerate growth, increase competitiveness, and create jobs for companies, policymakers, and other key stakeholders in this sector. Stay connected to the Center by contacting middlemarketcenter@fisher.osu.edu.