On Oct. 11, CIT, a bank holding company, released its report, Voice of the Middle Market: Perspectives from the Heart of the U.S. Economy. The following is excerpted from the report:
While many middle market executives (middle-market companies or midmarket companies are those with revenues generally between $10 million and $1 billion) are optimistic about where their companies are right now, only a minority believe the U.S. economy is doing well today and that the global economy is even weaker.
In addition to their anemic assessments of both economies, middle market leaders face a series of specific challenges ahead. This not only includes continued economic uncertainty within the U.S. and globally, but also tax increases, government regulations, compliance with the Affordable Care Act and hiring and retaining employees. Most are anticipating interest rates to rise, with a majority saying higher rates will negatively impact their business.
These concerns aside, many middle market executives believe the sector is positioned for growth over the next year. This will come through a combination of horizontal growth, vertical growth and diversification, such as increasing the range of products and services offered in current markets, as well as expanding into adjacent markets.
Policymakers and their current legislative agenda create hurdles for the middle market, too. Middle market leaders disapprove of Congress’ job performance.
Moreover, contrary to their own opinions about how the middle market bolsters the U.S. economy, few think Congress recognizes the impact middle market companies have on the U.S. economy. They are also bracing themselves from the impact that select legislative initiatives may have, not just on their own businesses, but also on the economic stability of their customer base.
In particular, the majority of middle market executives report that their companies are in a strong position today (60 percent). This is true across revenue categories, with very few describing the current state of their company as weak or very weak.
There is renewed optimism this year, with 55 percent saying they are better off today than compared to a year ago. Thirty percent feel they are in the same place, while the remaining 15 percent say they are worse off.
Most believe the middle market has a major impact on the U.S. economy, with about three in four holding this opinion (74 percent). This is up six points from 2012, revealing that middle market executives are even more likely to believe that their companies have a strong connection with the health and strength of the U.S. economy than they were a year ago.
Still, only a minority believe the U.S. economy is doing well right now, and they believe the global economy is even weaker. However, there is optimism much closer to home, with a sizeable minority describing their local economy as strong. Middle market leaders are five times more likely to say their local economy is doing well than they are to offer the same rating of the global economy (36 percent vs. 7 percent). Their view of the U.S. economy falls along this continuum, albeit more closely aligned with their perspective on the global economy.
Importantly, middle market executives have confidence not only in their own companies, but also in the U.S. economy. As such, while their current assessment of the state of the U.S. economy is unfavorable, with only 15 percent describing it as strong, many expect progress over the next year. Half say the U.S. economy will be stronger 12 months from now (51 percent). The rest split between saying there will be no change in a year (33 percent) or that the U.S. economy will, in fact, be weaker (16 percent).
Middle market executives see many challenges ahead. Most are worried about continued economic uncertainty within the U.S. and globally (81 percent and 70 percent, respectively). There are also concerns about tax increases (74 percent), compliance with the Affordable Care Act (70 percent) and compliance with government regulations (66 percent). Talent management — both hiring and retaining talent — also remains a challenge for the majority of those surveyed. Sixty percent say they are concerned about their ability to hire top talent, and 59 percent are concerned about their ability to retain top talent.
Middle market executives are most likely to say their hiring is constrained by current economic conditions.
The second most common reason hiring proves difficult is the quality of the applicant pool. In addition to challenges related to hiring top talent, almost half experience difficulties when trying to retain top talent (47 percent). Notwithstanding challenges related to hiring and retaining employees, 46 percent anticipate an increase in the size of their workforce in the coming year.
Thinking about the current legislative agenda, middle market executives are most likely to say that tax reform, balancing the budget and health-care reform will significantly impact their businesses. They also expect sequestration and immigration reform to impact them, albeit to a lesser extent. Middle market executives were asked about the effect of these same issues on the economic stability of their customer base, as well. Half, if not more, believe balancing the budget, tax reform and immigration reform will positively impact their customers. Conversely, many expect the Affordable Care Act and sequestration to negatively impact the economic stability of their customers.