Mid-sized firms are on track to add more than 1.25 million jobs in 2013, which would account for 7 out of every 10 new jobs created this year. In addition, the nearly 200,000 companies representing the U.S. middle market grew revenue at 5.5% over the past 12 months, more than double the rate of S&P 500 companies, according to the National Center for the Middle Market’s (NCMM) latest quarterly Middle Market Indicator (MMI). The report was released yesterday (October 30th) at the third annual National Middle Market Summit at The Ohio State University.
The U.S. middle market, made up of businesses with revenue between $10 million and $1 billion, contributes one-third of non-government U.S. GDP and accounts for 44.5 million jobs, or one-third of total U.S. employment. Between 2007 and 2010, U.S. middle market firms created 2.2 million jobs while large corporations cut more than 3 million jobs. The mid-market continued to outperform in job creation, with more than 2 million new jobs created between 2010 and 2012.
“Middle market companies defy even their own expectations on performance. This is a dynamic group of companies that continue to lead the U.S. economic recovery, but whose growth is stalling in light of the recent government uncertainty,” said Dr. Anil Makhija, Academic Director at NCMM, a partnership of GE Capital and The Ohio State University Fisher College of Business.
Uncertainty Plaguing Mid-Market Growth – Job Growth Projections Cut by 180,000
While annual growth trends are positive, this quarter’s MMI revealed a distinct moderation in quarterly gains as well as in employment, revenue, investment and confidence growth projections in the year ahead. The employment outlook over the next 12 months fell by almost 200,000 between Q2 and Q3, with middle market companies expecting to add around 900,000 new jobs. This comes as 47% of companies said that government uncertainty was highly challenging to them, a strong increase over Q2.
“Within the past year, markets have been roiled by the uncertainties arising out of fiscal cliff, sequestration, government shutdown, and the threat of default. The consequences of these macro-crises are clearly impacting job creation with middle market companies intending to create 200,000 less jobs over the next 12 months,” said Makhija.
As revenue growth slipped from 5.8% in Q2 to 5.5% this quarter, executives cut forecasts in the year ahead to 4.4%. This quarter’s MMI also indicated that executives’ willingness to invest dipped from 64% in Q2 to 61% in Q3. Likewise, confidence in the U.S. economy is down 3% from last quarter – at 61% – after experiencing a 7% bump between the first and second quarters of the year.
The Impact of Continued Uncertainty
Washington’s latest agreement to reopen the government and extend the debt ceiling sets the stage for another potential crisis of confidence early next year. 45% of the executives surveyed indicated a government default would have direct impacts on their businesses with higher interest rates, reduced business and consumer confidence, and reduced confidence in the credit worthiness of the U.S. Some 94% of the middle market executives consider the higher interest rates as the most adverse impact of the U.S. default on debt.
“This data should be a warning to policymakers that continued brinkmanship in Washington will have real consequences on economic growth nationwide,” Makhija said.
Survey Methodology - The MMI surveys 1,000 executives (CEOs, CFOs, and other C-Suite executives) from the middle market's nearly 200,000 companies, focusing on their business capabilities and performance, growth drivers, and economic outlook. This quarter’s MMI was fielded September 5-15. It is weighted to accurately reflect the size and geographic distribution of this sector, which includes companies with revenues between $10 million and $1 billion.
The quarterly MMI tracks responses on the following topics: Gross revenues performance; Overall company performance; Employment performance; Expected 12-month gross revenue and employment growth; Confidence in the global economy, U.S. economy and local economy; Key business challenges; Top areas for investment dollars; Perceptions on topical issues and challenges relevant to the U.S. middle market.
To download the Q3 2013 Middle Market Indicator, click here.