4Q 2012 Middle Market Indicator
The middle market continues to be an important component of the economy, driving growth in the U.S. and locally. Since actual and predicted revenues have been better than gains in the S&P 500, these companies also are critical to the economic recovery. Despite challenges such as the cost of healthcare and maintaining margins, most companies plan to hire more workers with the potential to add one million jobs in 2013. Another positive sign is that companies aren’t hoarding as much cash and making plans to put it to work and invest in their businesses. Revenue grew at about 7% for the past 12 months and is expected to remain strong in 2013. Most executives tend to underestimate their projected revenue, meaning that the 5.2% prediction likely will be surpassed.
Other Key Findings:
Confidence is low, but improving
While confidence remains depressed, the middle market is slowly becoming more optimistic about the global and U.S. economy. Of the firms surveyed, 25% said they were “somewhat confident” in the outlook for the global economy, while 8% are confident. The picture is even better for confidence in the U.S. economy with 36% of respondents “somewhat confident.” Those who are confident in the U.S. prospects rose to 15%, up from 11% in the third quarter.
Capital investment is likely to pick up slightly
Across industries, middle market companies are investing in their businesses instead of hoarding cash, continuing a trend seen in the previous two quarters of 2012. From December’s survey responses, 59% of respondents said they would invest extra money instead of holding it in reserve, up from 56% in the third quarter. Among the largest middle market companies the most commonly cited use of cash was to make acquisitions. But smaller middle market companies said they planned to use the money for technology and capital expenditures.
Firms plan to hire
The middle market added 1.17 million net new jobs in 2012. Of those companies surveyed, 42% said their workforce has increased from the same period last year. The average employment growth for middle market companies was 2.7%, compared with 2.1% for large U.S. firms according to ADP numbers.
Healthcare costs and regulations persist as the biggest challenge to success among all respondents irrespective of their size or sector. Companies also cited uncertainty about government actions and passing on commodities costs, all of which are factors out of their control. Firms also said they were concerned about their abilities to maintain margins and the rising cost of doing business, making it harder for them to grow revenue. This is unchanged from much of the year’s responses.