United States

RSM US Middle Market Business Index jumps in second quarter

Middle market shows strength as rate hike looms

INSIGHT ARTICLE  | 

The RSM US Middle Market Business Index (MMBI) shows the real economy rebounded strongly in the second quarter. The MMBI rose to 119.8 in the second quarter, up from 116.6 in the first quarter. A reading above 100 indicates an expanding middle market.

According to RSM Chief Economist Joseph Brusuelas, the index shows that business conditions for the middle market improved strongly from the first quarter. “Survey respondents reported that they intend to increase hiring and compensation as well as capital expenditures during the next six months, all of which are critical to a growing economy,” Brusuelas said. “Also worth noting in the index is that current and future expectations for earnings provide a stark contrast with conditions in the corporate sector that has broad exposure to the global economy,” he added. “This shows the middle market continues to outperform large corporations and is anticipating a stable economy in the second half of the year.”

The US middle market represents 40 million jobs, more than 200,000 businesses and 40 percent of US GDP. What’s more, the data underlying the index reading was gathered between March 30, and April 22, suggesting that this index could be a leading indicator for consumer spending and many of the other positive reports that are just now being published. 

The RSM MMBI joins recent consumer spending and other economic data showing an improving US economy. These data are being watched closely as the market speculates about whether the Federal Reserve will raise interest rates in June for only the second time in 10 years.

About the RSM US Middle Market Leadership Council survey and index: RSM US LLP has commissioned Nielsen to collect data on middle market firms from quarterly surveys that began in the first quarter of 2015. The survey is conducted four times a year, in the first month of each quarter: January, April, July and October. The survey panel consists of 700 middle market executives and is designed to accurately reflect conditions in the middle market.

The RSM Middle Market Business Index, or MMBI, is borne out of the subset of questions in the survey that ask respondents to report the change in a variety of indicators. Respondents are asked a total of 20 questions patterned after those in other qualitative business surveys, such as those from the Institute of Supply Management and National Federation of Independent Businesses.

The 20 questions relate to changes in various measures of their business, such as revenues, profits, capital expenditures, hiring, employee compensation, prices paid, prices received and inventories. There are also questions that pertain to the economy and outlook, as well as to credit availability and borrowing. For 10 of the questions, respondents are asked to report the change from the previous quarter; for the other 10 they are asked to state the likely direction of these same indicators six months ahead.

The responses to each question are reported as diffusion indexes. The MMBI is a composite index computed as an equal weighted sum of the diffusion indexes for 10 survey questions plus 100 to keep the MMBI from becoming negative. A reading above 100 for the MMBI indicates that the middle market is generally expanding; below 100 indicates that it is generally contracting. The distance from 100 is indicative of the strength of the expansion or contraction.

Read more about how the index is constructed

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