New data  released from Chubb and the National Center for the Middle Market (NCMM), reveals a rebound in middle market economic confidence from mid-year 2022, but confidence has yet to return to the historical levels experienced in 2021. More than half of middle market companies expressed a notable optimism about the potential for 2023 revenue growth.

The 2022 Year-End Middle Market Indicator (MMI), NCMM’s bi-annual flagship research report, surveyed 1,000 executives from the middle market during December of 2022. These are defined as companies with $10 million to $1 billion in annual revenue, which represent one-third of private sector GDP, employing approximately 48 million people (Source NCMM).

The survey revealed that economic confidence received a boost at year-end in the global, national and local US economies. The global economy increased nine points to 73%, the national economy increased five points to 74% and the local economy increased eight points to 86%. It should be noted that these percentages trail 2021 economic figures. Their future outlook appeared hopeful with 58% indicating they expect their gross revenues to increase and employment growth is expected to remain strong at 10%.

“The year ahead presents some considerable economic headwinds to middle market companies with persistent inflation, recession concerns and supply chain disruptions, but we are also seeing in the survey data and from our clients hope and the possibility for growth,” said Ben Rockwell, Division President, Chubb Middle Market. “Working with a trusted insurance partner can provide the insurance protection to getting ahead of these macro-economic uncertainties with solid risk mitigation strategies and avoiding coverage exposure blind spots for middle market companies.”

Other concerns of the middle market in the MMI found that 41% of businesses reported negative impacts from inflation over the past six months, up from 39% since the release of the 2022 Mid-Year MMI. Companies are feeling the biggest inflation impact from wages and salaries (46%), followed by the costs of raw materials/goods (44%). Moreover, the confluence of inflation, rising interest rates and recession concerns may be slowing investment appetite. Approximately two out of five companies (38%) said they have delayed capital investments due to inflation.

A Potential Recession and Rising Interest Rates Compel Tough Decisions

Amid recession concerns, 42% of middle market companies reported they would be negatively impacted by a recession. If a recession were to occur, companies said they would most likely cut expenses via budget reductions (32%) or operational efficiency (31%). They would also conserve cash (31%) and leave positions unfilled (29%). To curb the impact of rising interest rates, 29% of middle market companies plan to slow down hiring – a five percentage point increase from just six months ago – and delay the introduction of new products/services (26%).

“Despite heightened uncertainty, the US middle market’s overall economic confidence level is rebounding, and companies continue to report double-digit year-over-year revenue and employment growth,” said Doug Farren, Managing Director, National Center for the Middle Market housed at the Ohio State University Max M. Fisher College of Business. “Monitoring how middle market businesses continue to support growth through capital investment, innovation and expansionary activity will be critical in the upcoming year.”

Risk Motivates Middle Market to Consider Insurance Coverage and Protection

As companies navigate the increasingly complex risk landscape, 91% of middle market leaders are working closely with their insurance agents and brokers to identify best practices for reducing exposure to a range of risks and adjusting coverage to account for inflation.

Rockwell added, “As business needs and exposures evolve, middle market companies should regularly review their strategies and coverages with their agents and brokers and make necessary adjustments, where they should ensure appropriate coverages and limits are in place.”