1Q 2014 Middle Market Indicator

The first quarter of 2014 marked a resurgence in growth for the U.S. middle market. Middle market companies reported a year-over-year increase in revenue growth for the past 12 months and added workers to the payroll. Looking forward, middle market companies project revenue at a slower pace but expect employment to improve significantly. These projections are in line with continued economic confidence, as well as decreasing concerns and uncertainty related to the impact of government regulations in areas such as healthcare.


Key Insights

The U.S. middle market continues to lead growth for the U.S. economy. For the first quarter of 2014, 60% of middle market firms reported improved overall company performance versus one year ago. The proportion of companies reporting improved performance has remained fairly stable over the past 12 months. Middle market companies reported a year-over-year increase in revenue growth of 6.5%, outpacing the revenue growth for the S&P 500 as sales grew by 0.5% over the same period.

While year-over-year increases were experienced across all industry sectors, smaller middle market firms and firms in the wholesale trade industry have experienced some of the largest gains in revenue and hiring since last year. Revenue has been consistently projected to be slower than past growth.

Hiring trends expected to continue

Thanks in part to greater transparency into the regulatory landscape, middle market companies appear to have a renewed confidence in their ability to hire, with 46% of middle market firms saying they employ a larger workforce than they did one year ago. The same percentage of firms plan to add workers over the next 12 months. Additionally, companies reported 3.7% employment growth over the past year and mean employment growth has also increased significantly to 3.2%.

Plans for capital investment remain stable

Plans among middle market companies for investing capital have not changed since the past quarter—64% of middle market companies plan to invest while 36% plan to hold on to cash or invest in short term financial instruments. These percentages are virtually the same as one year ago, when 63% planned to invest and 37% planned to save.

Business challenges supplant regulatory concerns

The cost of healthcare remains the dominant challenge for middle market firms, but the intensity of this challenge is moderating. The number of companies considering healthcare costs to be “highly challenging” decreased to 46% this quarter
from 55% at the end of 2013. Uncertainty about government actions is also moderating with 34% of middle market firms considering it to be highly challenging this quarter compared to 44% last quarter.

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