The data, which has been seasonally adjusted, is based on responses from 405 senior executives at middle market firms in a survey conducted by The Harris Poll from Oct. 1 to Oct. 22.
Key takeaways
The Q4 MMBI rose to 131.5, up from 123.3 the prior period.
Fifty-two percent of respondents reported revenue gains; 58% expect gains over the next six months.
Seventy-one percent of firms paid higher prices; 72% anticipate higher costs in the coming months.
The Middle Market Business Index is created in partnership with the U.S. Chamber of Commerce.
Rising revenues and net earnings supported an improvement in the RSM US Middle Market Business Index to 131.5 from 123.3, a statistically significant increase on a seasonally adjusted basis.
This is just the beginning of what we expect will be a modest acceleration in overall growth next year as trade taxes stabilize and tax legislation takes effect.
More important, as middle market firms prepare for an environment of eased regulations, tax cuts, the retroactive full expensing of capital expenditures, and lower interest rates, businesses are growing more optimistic even as attitudes on the general economy remain sour.
While official economic data was available only through August because of the government shutdown, our data indicates the economy has experienced a modest acceleration.
The RSM survey asked 405 senior executives at middle market businesses about their views on economic conditions, both for the past quarter and looking six months ahead. The data was gathered from Oct. 1 to Oct. 22.
The most optimistic element of the survey is that 52% of respondents reported an increase in general revenues and 58% expect revenues to rise further over the next six months.
Half of all survey respondents reported higher net earnings, and 56% expect that trend to continue in the first half of next year, likely based on the anticipated impact of the coming policy changes.
Those improved revenues and earnings expectations, in addition to the retroactive full expensing, fueled the improvement in capital expenditures, with 48% stating they increased outlays in the current quarter and 53% anticipating doing so over the next two quarters.
Respondents remained sour on the overall economy, though, with only 38% saying the economy improved while 36% stated it had deteriorated.
Nearly half, or 46%, expect it to improve over the next six months, and 32% anticipate it will weaken.
To be sure, the data on prices paid, indicating general inflation conditions, and the data on prices received, indicating the ability to pass along those price increases, reflect the general unease of firms as they grapple with pricing pressures.
That concern is consistent with the increase in inflation over the past year—3.6% on a three-month annualized basis. Nearly three-quarters, or 71%, of midmarket firms surveyed reported a rise in prices paid.
This suggests that the official October and November inflation data, to be published over the next several weeks, will show a sustained increase in inflation at or above 3%.
Not surprisingly, 72% of survey participants said they expect to pay higher prices through the middle of next year.
Also unsurprising is that middle market firms have attempted to pass these costs along, with 61% reporting they hiked prices in the current quarter and 64% indicating they intend to do so over the next half a year.
Over the past several months, demand for workers has slowed, and ADP’s survey of private-sector employers showed outright contraction in midmarket hiring.
In the current quarter only 40% of respondents reported they increased hiring, up from 34% previously, while 50% signaled an intent to do so through the middle of next year.
Half of the executives surveyed reported increasing compensation, while 55% stated they would lift compensation in the coming months.
In the final quarter of the year, 35% of respondents reported an increase in inventory, the same percentage as in the third quarter.
Given the unusual trade situation, inventory levels may surge early next year as some tariffs are rolled back and the general trade situation stabilizes.
Tax relief, eased regulations and new AI efficiencies are giving the economy a solid boost, which is critical in helping offset higher costs from tariffs. Profit margins are lifting as companies pass these costs on to customers, but so is inflationary pressure. Slower demand for labor will be something to watch amid a tight labor market that could stifle growth.
Neil Bradley, Executive Vice President, Chief Policy Officer and Head of Strategic Advocacy, U.S. Chamber of Commerce
RSM contributors
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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.
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Manufacturing executive
Rising tariffs, supply chain disruption and technology implementation.
Manufacturing executive
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Health care executive
Cybersecurity issues are always a problem.
Finance and insurance executive
Inflation and interest rates are a challenge in my business.
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The cost of the product is increasing day by day.
Finance and insurance executive
Struggling to manage cash flow due to delayed client payments and rising material costs in large-scale commercial projects.
Construction executive
We are having trouble attracting and retaining employees.
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Balancing limited resources while maintaining high academic standards; increasing expectations to integrate new technologies; staff recruitment and retention.
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ABOUT THE RSM US MIDDLE MARKET BUSINESS INDEX
In partnership with the U.S. Chamber of Commerce, we've collected data on middle market firms since 2015 through quarterly surveys conducted by The Harris Poll.
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.
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?
With a backlog of research for nearly 10 years, each question in the MMBI index is now 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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