Q1 2024 Middle Market Business Index

RSM US Middle Market Business Index shows a sustained expansion

Mar 28, 2024

Key takeaways

The data is based on responses from 403 senior executives at middle market firms in a survey conducted by The Harris Poll from Jan. 8 to Feb. 16.

The MMBI eased slightly to 130.8 from 132.3 at the close of last year.

Nearly two-thirds of executives said they expect an improvement in economic conditions over the next six months.

Sixty-seven percent said they anticipate an improvement in both net earnings and revenues later this year.

The Middle Market Business Index is created in partnership with the U.S. Chamber of Commerce.

U.S. Chamber of Commerce logo

The RSM US Middle Market Business Index eased in the first quarter, but not enough to change our view that a sustained expansion will continue throughout this year amid improving productivity.

RSM US’s proprietary survey of business conditions in the middle market edged down to 130.8 from 132.3 at the close of last year. But the change was not statistically significant at either the 0.05 or 0.10 level, leaving our outlook unchanged. 

Nearly two-thirds, or 62%, of the executives surveyed said they expect an improvement in economic conditions over the next six months, which is supported by the 67% who said they anticipate an improvement in both net earnings and revenues over that time.

Adding to the buoyant outlook, 59% said they intend to bolster productivity-enhancing capital expenditures. Based on the survey results overall, the primary takeaway is that executives have a bullish outlook on the year even as economic growth moderates from the blistering 3.1% pace of last year.

Results from the current quarter were a reflection of the economy’s resilience: 45% noted an improvement in current economic conditions, 46% said gross revenues and net earnings had improved, and 48% said they had accelerated their investments in capital expenditures.

Since the tail end of 2020, or 14 straight quarters, most middle market executives have said they intend to increase their outlays on software, equipment and intellectual property that make up cumulative capital expenditures.

It is not surprising that a three-year period of solid investment in firms’ ability to produce has resulted in an average increase of 3.9% in American productivity over the past three quarters.

While such robust gains in productivity are unsustainable, anything at or above 2.5% bodes well for an economy that can grow at a faster pace, retain a low unemployment rate and obtain price stability, all while bolstering living standards for all.

In addition, with the revolution in artificial intelligence and quantum computing at hand, firms would be wise to aggressively integrate sophisticated technology into the production of goods and provision of services.

Hiring and compensation in the first quarter remained rock solid, with 44% of executives noting they had increased hiring and 58% saying they intend to do so over the next six months.

With the U.S. economy at what we consider to be full employment, wage competition for midcareer, value-adding employees will remain challenging at best. Not surprisingly, 54% of executives said they had increased compensation to obtain workers and 65% said they expect to do so this year.

In the post-pandemic era, we have consistently noted that middle market firms should not anticipate a return to the pre-crisis status quo on inflation and employee compensation, and the current survey’s data reflects those new realities. 

The Real Economy Livestream series

Midyear update on the middle market economy

Join RSM US Chief Economist Joe Brusuelas and U.S. Chamber of Commerce Executive Vice President Neil Bradley as they discuss the economic outlook and what middle market companies should anticipate in the coming months.

May 30, 2024 | 1 p.m. ET

Given those structural changes to the domestic economy, one would expect pricing to be a top concern. Indeed, 73% of the executives said they paid higher prices for goods and services, while 68% expect to do so going forward. As such, 48% said they passed along those higher prices and 58% indicated they intend to do so over the next six months.

Although inflation is slowing, given the strong level of aggregate demand, we are confident that middle market firms will retain some measure of pricing power.

And that solid demand underscores the fact that 45% of the executives said they had increased inventories in the current quarter, down slightly from the 47% that did so in the fourth quarter. In addition, 58% said they intend to increase inventories over the next six months, reflecting robust expectations around gross revenues and net earnings in the survey.

That being the case, it is not surprising that while only 19% of senior managers from the middle market companies indicated their access to credit was easier, 43% of these managers plan to borrow more capital going forward. Both of those figures eased from last year, which may indicate that robust business conditions and rising revenues have provided a much-needed respite from the pricing pressures of the past three years.

Should that strength continue, it would suggest that middle market firms have made their final adjustment to the shocks of the pandemic era and have pivoted into the emerging business conditions of a new economic era.

Middle market businesses’ continued optimism reflects the U.S. economy’s ongoing strength. It’s encouraging that businesses in the middle market remain positive about the economic outlook and their own revenue growth despite the fact that rising regulatory burdens and workforce challenges are creating headwinds and constraining growth.
Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce

Smaller midsize firms lag larger rivals on cyber resources as breaches rise

Smaller organizations in the middle market need to close the gap between themselves and their larger counterparts on deploying resources to thwart rising cyberattacks, RSM data shows.

Cybersecurity budgets are set to rise relative to their organization’s revenues for nearly 37% of middle market companies whose executives were surveyed in the Q1 RSM US Middle Market Business Index survey, but a disparity in resource deployment exists between smaller midsize companies, or those with $10 million to $50 million in annual revenue, and larger organizations with annual revenue of $50 million to $1 billion.

Just 29% of smaller firms will boost their cybersecurity budgets, while nearly half (48%) of larger firms had plans to do so. The budget allocations come as breaches are on the rise. Overall, 28% of middle market organizations polled were breached last year, up from 20% a year earlier.

Ransomware attacks eased overall—with 30% of businesses in the MMBI indicating they had experienced at least one incident over the past year compared to 35% in 2023.

RSM will be releasing a full report on the survey’s cybersecurity findings in May.

Cyber breaches are up on a year over year basis. 

You don’t have to go it alone—check out the ways we can help shore up your flanks. 

RSM contributors

On the middle market mind

We asked middle market executives to describe a top business problem facing their organization. Here's what they had to say:

From technology tools to human capital solutions, find out how you can implement strategies to optimize key processes and drive increased productivity. 

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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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.

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