Middle-Market Growth Forecast Plateaus

Companies between $10 million and $1 billion in revenue expect slower expansion over the next year.

Middle-market companies expect revenue and employment growth to slow over the next year, according to a new survey by the National Center for the Middle Market (NCMM).

The 1,000 C-suite executives responding to the quarterly survey predicted that on average revenue  would grow 4.4 percent over the next year, a drop from the 5.1 percent estimated the quarter before. They also expected hiring among middle-market companies to grow 2.1 percent over the next 12 months, a drop from the 2.5 percent predicted last quarter.

When asked what they would do with an extra dollar, 61 percent of the middle-market executives surveyed said they would invest it. That compares with 64 percent who responded that way last quarter.

Middle market indicatorGrowth in the middle market — defined as U.S. companies with revenue between $10 million and $1 billion — may be slowing for a few reasons, says Anil Makhija, academic director at the NCMM. “First off, we have managed to produce a lot of uncertainty in the economy and uncertainty is of course the enemy of investment and growth,” he says. “In that kind of environment, you can imagine that firms will rethink their investment strategies and that affects revenue growth.” The fiscal cliff, sequestration and ongoing debates over the U.S. debt ceiling all contributed to the feeling of malaise, he says. Health-care reform costs and talent gaps may also be contributing to the slowdown, Makhija says.

Sixty-two percent of respondents, however, said they were at least somewhat confident in the United States economy, compared with 48 percent who said so in the third quarter of 2012.

At the same time, “the middle market remains the engine of growth if you compare how it is doing relative to the other segments,” Makhija says. Middle-market businesses saw revenue growth of 5.5 percent in last 12 months, while revenue growth at S&P 500 firms was 2.6 percent over the same period.

Indeed, the middle-market segment “is extremely important to the overall economy,” Makhija says. Firms with revenue from $10 million to $1 billion represent only 3 percent of all companies but contribute roughly one-third of private-sector GDP, he says.

The NCMM is a partnership between GE Capital and The Ohio State University Fisher College of Business.

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