The RSM US Middle Market Business Index (MMBI), presented by RSM US LLP (RSM) in partnership with the U.S. Chamber of Commerce, increased to 132.9 in the fourth quarter from 129.6 in the previous quarter on a seasonally adjusted basis. The MMBI survey results reflect the strong 4.9 percent pace of growth and 4.7 percent increase in productivity in the third quarter, underscoring the health of the U.S. middle market and an overall economy that is expected to grow at or above the long-term trend of 1.8 percent next year.

"The major takeaway from the fourth quarter survey is that middle market firms expect to continue making productivity-enhancing capital investments to bolster output," said Joe Brusuelas, chief economist with RSM US LLP. "We anticipate improved corporate earnings ahead as pricing pressures ease and the past outlays on software, equipment and intellectual property boost overall economic activity at a reduced cost. While sentiment on the economy remains somewhat sour, it is simply not stopping middle market businesses from expanding their operations."

Middle Market Firms Expect Strong Revenues and Net Earnings in Coming Months

Middle market executives' mood on the economy improved somewhat, with 42 percent indicating an improvement in general economic conditions, up from 36 percent previously, while 39 percent said there was some deterioration. Looking ahead, 62 percent of survey respondents indicated they anticipate an improvement in economic conditions through the middle of next year.

A plurality of the surveyed executives said that gross revenues and net earnings had been improving during the current quarter, with 44 percent indicating better revenues and 41 percent noting improved earnings. In contrast, 32 percent and 37 percent, respectively, indicated deterioration in the two. Encouragingly, 72 percent of executives expect strong revenues and 71 percent anticipate improved net earnings over the next six months. RSM attributes middle market pricing power as one reason why firms remain optimistic about revenues and net earnings.

"Looking ahead to 2024, it is encouraging to see that businesses in the middle market have improved their outlook on the economy," said Neil Bradley, Senior Vice President and Chief Policy Officer at the U.S. Chamber of Commerce. "As businesses continue to invest in their growth, they need policymakers in D.C. to get serious about investing in them. That means tackling the rapidly rising regulatory burden and workforce challenges constraining further economic growth from the middle market sector."  

Firms Continue Investing in their Business Despite Elevated Costs

One hallmark of the pandemic era that has continued into the current expansion is a willingness of middle market firms to invest in their firms to boost productivity during a time when labor remains tight. Twenty-six percent of surveyed executives said they increased borrowing to finance commercial and industrial loans and 49 percent said that they would do so during the next six months.

Despite the increased cost of doing business, 46 percent of MMBI survey participants boosted outlays on capital expenditures and 66 percent said they intend to so over the next half year. Those investments should create the conditions for the improved revenues and net earnings that executives report expecting in the near term. In contrast, 20 percent of executives said they pulled back on capital expenditures and 9 percent intend to pull back over the next six months.

Optimism about the future is underscored by firms' hiring and compensation plans. In the current quarter, approximately 44 percent of firms increased hiring and 66 percent said they intend to do so during the next 180 days. Roughly 52 percent of participants increased employee compensation and 68 percent said they would do so in the near term.

Pricing remains a challenge in the middle market and is largely responsible for sour sentiment among the public and some firms. Seventy-one percent of survey respondents reported paying more for basic goods in the current quarter and 75 percent said they expect to continue paying more over the next six months. Nearly half (47 percent) implied an increase in prices charged to firms downstream and 66 percent said they would increase prices in the near term.

The survey data that informs this index reading was gathered from 403 respondents between Oct. 2 and Oct. 20, 2023.