The RSM US MMBI rose to 113.4 , a peak in the current business cycle.
Key takeaways
Executives were optimistic in their outlook for revenues, earnings and capital expenditures.
Although prices paid jumped, executives did not expect those increases to continue.
The data, which has been seasonally adjusted, is based on responses from 500 senior executives at middle market firms in a survey conducted by The Harris Poll from April 1 to April 23.
A tailwind from tax cuts, in addition to the likely wealth effect of rising equity valuations, bolstered America middle market sentiment heading into midyear, according to RSM’s latest survey.
The RSM US Middle Market Business Index increased to 113.4 from 107.0 in the second quarter, a peak in the current business cycle.
The increase was accompanied by strong improvement in expectations over the next six months on revenues, net earnings and capital expenditures.
The survey, conducted from April 1 to April 23, included the responses of 500 senior executives at middle market firms.
A red-hot nonresidential investment market, fueled by $1.6 trillion in artificial intelligence-related capital expenditures since last year, is likely lifting the broader economy and offsetting weakness in other sectors like housing.
Despite some risks around the outlook linked to inflation, the American middle market looks well positioned heading into the second half of the year.
While survey respondents cited improvements in revenues (59%), net earnings (58%) and capital expenditures (57%), it was the forward-looking questions that showed the sharpest jump.
About two-thirds, or 66%, of executives said they expect revenues to improve, 65% said earnings would rise, and 65% indicated they expect to increase outlays on capital expenditures in the coming months.
The robust increase in capital expenditures for both the current quarter and over the next six months bodes well for future productivity within the market segment and the overall economy.
Only 47% of respondents indicated that conditions in the general economy improved during the quarter, while 60% expect improvement in the next half a year.
One of the more interesting aspects of the survey is that despite a sharp increase in the percentage of respondents who said they paid higher prices this quarter, the share expecting a sustained increase over the next six months declined slightly from the previous survey.
Like the majority of the U.S. investment community, the survey respondents apparently anticipate the recent increase in inflation to be transitory.
That, of course, denotes some risk to middle market sentiment in the second half of the year if the supply shock caused by the war in the Middle East does not ease quickly.
Disruption in the flow of oil and refined products out of the Persian Gulf will start to bite at the microeconomic level, resulting in a second round of inflation.
Given that risk, it makes sense to look at the prices paid and prices received data for the quarter.
The percentage reporting an increase in prices paid for inputs increased to 78% from 71%, and the share expecting an increase fell to 69% from 73%.
Although the percentage of executives who expect prices to continue to rise remains elevated, middle market managers apparently do not see rising inflation as a risk.
But they are not so sanguine about rising compensation levels in an economy at full employment. Approximately 62% of survey participants reported that they increased compensation this quarter, up from 53% previously, while 65% noted they expect to pay more for new hires.
More than half, or 53%, said they increased hiring in the second quarter, up from 45% in the previous quarter, while 58% indicated they expect to increase hiring during the next six months.
The survey data matches up well with the modest increase in hiring in April and May as well as the 4.3% U.S. unemployment rate, which is a good working definition of full employment in the American economy.
RSM contributors
General economy
Gross revenues
Net earnings performance
Capital expenditures
Overall hiring
Employee compensation
Access to credit
Planned borrowing
Amount paid for goods
Amount received for goods
Inventory levels
To refer to the percentages in the subindex items, access the PDF.
Keeping up with rising costs of inflation.
Manufacturing executive
Keeping up with new technology and artificial intelligence.
Manufacturing executive
We currently are facing supply chain disruption issues.
Manufacturing executive
Keeping up with regulations and new technology while staying profitable serving customers well worldwide.
Finance and insurance executive
Maintaining consistent customer acquisition while controlling rising digital advertising costs.
Finance and insurance executive
Providing the best quality of care and being cost and operationally efficient at all locations.
Health care executive
Implementing compatible software and cybersecurity.
Health care executive
Finding reliable skilled labor has been a major concern.
Construction executive
Modernizing existing technology infrastructure.
Retail trade executive
Adapting to upcoming technology features and choosing to trust them with sensitive information.
Retail trade executive
Persistent volatility. Uncertain economic conditions.
Retail trade executive
Keeping systems secure and up to date while managing increasing cybersecurity threats and limited resources.
Educational services executive
Slow adoption of new digital technologies across teams.
Educational services executive
Forecasting office space demand and optimal repurposing strategies as hybrid work stabilizes.
Real estate executive
Changing demand patterns make it difficult to effectively manage inventories across several channels.
Wholesale trade executive
Employee retention and onboarding are difficult and different for us.
Accommodation and food services executive
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ABOUT THE RSM US MIDDLE MARKET BUSINESS INDEX
The RSM US Middle Market Business Index provides a leading measure on the performance of businesses that make up the heart and soul of our country's economy. Data on these middle market firms is collected via quarterly surveys conducted by The Harris Poll.
Middle market organizations, which make up the real economy, are too big to be small and too small to be big. They are the backbone of the broader economy, yet they often fly under the public radar. They have distinct challenges and opportunities around financing, material resources, labor, technology, innovation, regulation and other issues. The MMBI breaks new ground by capturing the distinct sentiment of this important subset of the U.S. economy.
RSM US LLP and The Harris Poll have collected data on middle market firms from a quarterly survey 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 Middle Market Leadership Council, our survey panel, consists of approximately 1,600 middle market executives, and is designed to accurately reflect conditions in the middle market. The data is weighted to ensure that it corresponds to U.S. Census Bureau data on the basis of industry representation.
An index reading above 100 indicates that the middle market is generally expanding; a reading below 100 shows that the middle market is generally contracting. The distance from 100 is indicative of the strength of the expansion or contraction.
The MMBI survey is conducted four times a year. It is based on a subset of questions that ask middle market executives to report the change in a variety of indicators ranging from their organizations’ earnings to hiring levels and prices paid for goods and services.
The MMBI is a composite index computed as an equally weighted sum of the diffusion indexes for 10 survey questions plus 100 to keep results from becoming negative. The index is designed to capture views on both current and future conditions; it includes five questions on middle market executives' recent experiences and five on their expectations for the future.
The survey panel, the MMBI Leadership Council, consists of approximately 1,600 middle market executives across a broad array of industries, and is designed to accurately reflect conditions in the middle market.
RSM US LLP and The Harris Poll have collected data on middle market organizations using quarterly surveys, which began in the first quarter of 2015. The MMBI survey is typically conducted four times a year, in the first month of each calendar quarter: January, April, July and October.
- What are your expectations regarding the general economy?
- What are your expectations regarding your organization’s gross revenues?
- How would you describe the level of your organization’s most recent quarter net earnings results?
- What are your expectations regarding your organization’s aggregate capital expenditures or investments?
- What are your expectations regarding your organization’s overall hiring levels?
- How would you describe your organization’s current employee compensation level on average?
- How would you describe current access to credit?
- What are your expectations regarding your organization’s planned borrowing?
- How would you describe the current general level of prices received?
- What are your expectations regarding your organization’s planned inventory levels?
Each question in the MMBI index is seasonally adjusted using the Census X-13 method in order to remove periodic fluctuations associated with recurring calendar-related events. Seasonally adjusted values for questions make it easier to observe underlying fundamental changes, particularly those associated with economic expansions and contractions.
For this adjustment, the "increase" and "decrease" percentage components of each index question will be tested for seasonality separately and adjusted accordingly if such patterns exist. If no seasonality is detected, the component will be left unadjusted.
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