Macroeconomic challenges pose a threat to future prosperity.

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The mid-year point of 2022 finds the middle market performing admirably but facing a variety of macroeconomic challenges that pose a threat to future prosperity. When we last surveyed this key sector of the U.S. economy at the end of 2021, reported year-over-year growth in both revenue and employment hit all-time highs. Better still, most middle market companies shared in the success story, with a majority of firms experiencing significant gains over 2020, a year decimated by the start of the COVID-19 pandemic. 

The probability of on-going success will depend on a variety of factors. As detailed in the Spotlight section of this MMI report, inflation is affecting the same number of companies positively as it is negatively. On a related note, the realization of rising interest rates, after years of nearly free borrowing, is driving down confidence and investment planning. Finally, the supply chain disruptions emerging a year ago continue to plague a number of middle market industry sectors; and the situation has worsened given the current geopolitical conditions in Eastern Europe and Asia. 


The mid-year 2021 report told of a return to growth, albeit in a very bifurcated way. Compared to the depths of 2020, with shutdowns, health orders, and other mandates essentially shuttering entire industries, key metrics and results were bound to improve. Now mid-way through 2022, the strong growth in both revenue (12.2% vs. 8.0% in 2021) and employment (10.8% vs. 5.9% in 2021) only reinforces the notion that middle market companies are resilient. In fact, 73% of middle market companies say they are doing better today than a year ago; that number was just 66% last summer. 

Driven by robust performance gains, the middle market has engaged in a number of expansionary activities. For instance, 23% of companies added a new plant or facility in the past year (a six-point increase over 2021). Almost half of the companies surveyed introduced a new product or service, representing a 33% increase over the prior year. Finally, when it comes to market expansion, nearly four in 10 companies say they entered new domestic markets while nearly 20% moved into new international opportunities. 


The impressive performance of the “Mighty Middle” is nothing new. The center has been monitoring these companies regularly through the MMI survey since 2012. Historically, different shocks have affected some industry sectors to a greater degree than others; but the middle market always bounces back, typically stronger than before.

However, several red flags raise legitimate concerns about the next year. Economic confidence, measured across global, national, and local scales, continues to fall rapidly. Global confidence is at 64%, down from 81% a year ago. Local confidence – particularly important because most mid-size companies operate locally and regionally – has taken a noticeable hit from 2021, dropping sharply from 91% to 78%. As noted, the issues of inflation, interest rates, supply chain issues, and even workforce concerns are clearly weighing heavily on the minds of middle market leaders.  


While some of the issues facing the middle market (and companies of all sizes) are outside the control of leadership teams, we have typically seen an adaptive mentality within the cultures of these businesses. Because of the sustained historical success of many middle market firms, their conservative and focused nature, and the ability to manage their own futures as privately held enterprises, we have said that these firms lie at the intersection of resilience and runway. 

Will this be enough to overcome the headwinds in the marketplace today? We already see signs of an increasing pullback in plans for future investment, capital spending, and other expansionary activity as leaders face new uncertainties. Even so, projections for both revenue and employment in the next 12 months remain decidedly strong. Typically, we see conservative estimates for both metrics as middle market companies tend to under-promise and over-deliver, suggesting that actual performance could be even better than the estimates. By making sure core assets are protected, digital transformation efforts continue effectively, and the most important asset – people – are found, developed, and retained, there is no reason to believe the middle market will not deliver or even overdeliver in the months ahead.