RSM US Middle Market Business Index Eases Modestly in November, as the COVID-19 Pandemic Intensifies

CHICAGO – (December 14, 2020) – RSM US LLP (RSM) – the nation’s leading provider of audit, tax and consulting services focused on the middle market – today announced results of the November reading for its RSM US Middle Market Business Index (MMBI). Typically a quarterly index, the firm is releasing monthly installments of the MMBI for the duration of the COVID-19 pandemic. November’s data revealed the MMBI composite score eased modestly from 126.7 in October to 123.6, indicating that expectations on the direction of the economy, net earnings and revenues among middle market business executives are changing in light of an intensifying pandemic, a potential vaccine and likely policy changes in 2021.

The November MMBI data reflects stout middle market business conditions, with nearly half of respondents reporting higher gross revenues (48%) and profits (49%) in November and the majority expecting solid growth over the next six months. However, the results also point to wavering optimism among executives as the economy continues to absorb the latest shocks from the pandemic. Notably, the share of executives expecting the U.S. economy to improve over the next two quarters dropped sharply to 49% in November, down from 66% in October. The decline is consistent with the view that the recent resurgence of COVID-19 will weigh heavily on the economy in the fourth quarter.

“The weakening forward-looking sentiment among middle market business leaders aligns with expectations that the negative effects of the virus will intensify heading into the winter,” said RSM Chief Economist Joe Brusuelas. “However, firms may be underestimating the economic impact of a potential vaccine in the second half of 2021. We strongly suspect that the unlocking of economic activity will stimulate the economy with what we expect will be a 3.5% pace of growth next year. We anticipate that as the timetables on the distribution of a safe and effective vaccine become public knowledge, middle market business sentiment will improve, and expectations will become consistent with our bullish outlook.”

The November MMBI results illustrate that middle market firms are expanding, albeit at a slower rate when it comes to employment and business capital spending. While the majority (52%) of business leaders said they are willing to increase compensation to attract and retain talent, only 40% reported an increase in hiring in November. This restraint is consistent with the Bureau of Labor Statistics’ monthly figures on employment, which illustrate a significant slowing in job growth in the first two months of the fourth quarter and likely reflect deceleration in the domestic economy amid the pullback by the public and the increase in local lockdowns.

Furthermore, the survey revealed that executives are hesitant to predict what the post-pandemic economy will look like and how technology, telework and automation will shape the middle market in the years ahead. Only 40% of firms said they increased capital expenditures or outlays on productivity-enhancing equipment, software and intellectual property in November, and 49% indicated an intent to do so over the next six months. This is likely to be one of the most significant constraints faced by middle market firms as technological change continues to reshape the economy.

RSM will continue to publish monthly installments of the MMBI for the extent of the COVID-19 pandemic. To stay informed with the latest insights, ideas and countermeasures to minimize the outbreak’s negative effects as well as prepare for future emergency events, visit RSM’s COVID-19 Resource Center.

The November MMBI data was collected between November 9 and November 19, 2020.