For the second quarter in a row, middle market executives say that middle market corporate growth continues to moderate, suggesting that the business cycle remains steady following a period of robust growth in 2014.

Some 66 percent of middle-market executives reported improved past-year company performance in the second quarter of 2015, up two percentage points from the first quarter, according to the National Center for the Middle Market’s Q2 2015 Middle Market Indicator (MMI) issued today.

What’s more, those companies in the center of the middle market (revenues of $50 million to $100 million) saw especially solid performance, increasing by 10 percentage points from the first three months of 2015.

Middle-market companies, defined as those with revenue between $10 million and $1 billion, account for roughly one-third of the total employment status of the U.S. and generate $10 trillion in annual revenue. While relatively unreported on, the U.S. middle market is the fifth largest economy in the world following Japan and leading Germany in size.

“So much of the middle market remains privately held, and as such, it has maintained a low profile despite its outsized importance on the overall economy,” said Thomas A. Stewart, Executive Director, NCMM, a partnership between GE Capital and The Ohio State University Fisher College of Business. “Revenue for middle market companies grew 6.6 percent, year over year. Revenue for S&P 500 actually declined 1.8 percent. And while revenue expectations have tapered off a bit for the next 12 months—perhaps in anticipation of increases in wages, interest rates, or energy costs—the middle market continues to set the pace for the economy.”

Small but Steady Gains

Since the second quarter of 2014, the middle market has seen a three percentage point increase in companies reporting improved performance (66 percent in Q2 2015 vs. 63 percent in Q2 2014) while the percentage of companies that reported deteriorated performances fell from nine percent to six percent, representing a shift towards sustainable, solid growth. Three out of five middle market businesses continue to anticipate future business growth.

Workforces Have Rightsized

Employment growth in the middle market continues to slow, with the mean total growth decreasing from 4.3 percent in Q1 to 3.9 percent this quarter. Furthermore, companies lowered expectations for hiring over the next 12 months, with 38 percent expecting to hire in the next year and only 31 percent expecting to hire in the next three months, both down from the previous quarter. Meanwhile, companies at the high end of the middle market (revenues of $100 million to $1 billion) are showing significantly reduced workforce growth expectations with 35 percent anticipating a new hire, down from 42 percent in Q1.

Top Concerns

Two-thirds of middle market companies expressed concerns that unexpectedly rapid wage increases would negatively impact their businesses. The construction (77 percent) and healthcare (76 percent) industries are the most worried about wages, while companies in the financial services space (53 percent) were fairly neutral on the issue.

In addition, 76 percent of middle market companies feel that state and federal regulations negatively affect their business, noting the complexity of regulations and costs of compliance as the main issues.

Other Findings Included the Following:

• Middle market companies prioritize government spending on physical infrastructure over digital infrastructure (cybersecurity) and education
• Confidence in the U.S. economy dropped this quarter, although middle market companies are more confident now in the global economy than they have been in the last year
• The retail industry saw the largest drop in short-term sales expectations and has the lowest anticipated workforce increases over the coming year (1.2 percent)

For additional survey data and infographics including in-depth looks at regional variations, hiring/talent acquisition efforts and other business concerns among middle market companies, visit http://www.middlemarketcenter.org.