The RSM US Middle Market Business Index (MMBI), presented by RSM US LLP (“RSM”) in partnership with the U.S. Chamber of Commerce, reached a record high for the second consecutive quarter, indicating middle market business leaders remain extremely confident about the current and future state of the U.S. economy. In Q2 2017, the MMBI posted a record-high composite score of 132.1, up 2.3 points since Q1 and more than 12 points since Q4 2016. A reading above 100 indicates an expanding middle market.

Highlighting the strong performance of the middle market were data around revenues and net earnings. Fifty-five percent of executives surveyed stated they anticipate a better quarterly revenue performance over the previous quarter, the highest recorded since the inception of the MMBI in 2015, while only 16 percent expected revenue to decline. Net earnings followed a similar trajectory with 53 percent of executives stating they expected net earnings to be better than the previous quarter.

MMBI data also showed an extremely tight labor market, with an abundance of data indicating businesses will need to pay more for skilled labor in the coming months as hiring dynamics continue favoring workers. An astounding 56 percent of executives cited they anticipated employee compensation to increase in the next six months, with only three percent anticipating a decrease in overall compensation. Even with anticipated wage increases, 48 percent of executives plan to hire in the second half of 2017, this represents the second highest level since 2015.

“The middle market continued to outperform large companies, with data showing an overwhelming majority of respondents had expectations for increased gross revenue and improved net earnings in the coming quarters,” said RSM US LLP Chief Economist Joe Brusuelas. “This cohort is also experiencing the effects of record-low unemployment, as evidenced by expectations for higher compensation levels. The confluence of these dynamics this late in the business cycle makes decisions around business investment and hiring all that more critical in the coming months.”

Worth noting, according to Brusuelas, “Since the election, businesses have priced in substantial tax reform this year and significant infrastructure spending during the next several years. Given the political turmoil in Washington, expectations on tax reform and infrastructure spending may need to be reset going forward, which would likely be accompanied by a reduction in the outlook for gross revenues.”

“Continued growth and optimism among middle market companies will help push our economy forward,” said U.S. Chamber of Commerce Middle Market Business Council Executive Director Tom Sullivan. “It’s encouraging to see the MMBI hit another record-high because stronger, faster economic growth is good for every American business and every worker. The U.S. Chamber will continue to advocate for policies — like tax and regulatory reform — that will encourage business expansion and further lift middle market companies.”

The survey data that informs the index reading was gathered between April 6 and May 2, 2017.

Download the full 2017 Second Quarter Report here.

RSM US LLP and the U.S. Chamber of Commerce have partnered to present the RSM US Middle Market Business Index (MMBI). It is based on research of middle market firms conducted by Harris Poll, which began in the first quarter of 2015. The survey is conducted four times a year, in the first month of each quarter: January, April, July and October. The survey panel consists of 700 middle market executives and is designed to accurately reflect conditions in the middle market.

Built in collaboration with Moody’s Analytics, the MMBI is borne out of the subset of questions in the survey that ask respondents to report the change in a variety of indicators. Respondents are asked a total of 20 questions patterned after those in other qualitative business surveys, such as those from the Institute of Supply Management and National Federation of Independent Businesses.

The 20 questions relate to changes in various measures of their business, such as revenues, profits, capital expenditures, hiring, employee compensation, prices paid, prices received and inventories. There are also questions that pertain to the economy and outlook, as well as to credit availability and borrowing. For 10 of the questions, respondents are asked to report the change from the previous quarter; for the other 10 they are asked to state the likely direction of these same indicators six months ahead.

The responses to each question are reported as diffusion indexes. The MMBI is a composite index computed as an equal weighted sum of the diffusion indexes for 10 survey questions plus 100 to keep the MMBI from becoming negative. A reading above 100 for the MMBI indicates that the middle market is generally expanding; below 100 indicates that it is generally contracting. The distance from 100 is indicative of the strength of the expansion or contraction.