RSM US Middle Market Business Index Rebounds in May, Revealing the Beginning of Economic Recovery
RSM US Middle Market Business Index indicates a return to modest growth this year.
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 May 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. Today’s data revealed the MMBI composite score jumped to 106.1 in May after reaching an historic low of 87.8 in April, indicating the tentative beginning of the long road to recovery in the U.S. economy.
The uptick, likely driven by the initial reopening of the economy in many states, denotes a slower pace of contraction and highlights that middle market leaders expect a quick return to modest growth this year. Of the middle market executives surveyed, 53% expect the economy to improve over the next six months. Additionally, 50% anticipate an improvement in gross revenues and 49% expect to see net earnings increase. These forward-looking expectations show significant improvement from the current monthly reading, where only 28% of respondents expect an improvement in gross revenues and 29% in net earnings.
“The projection of confidence over the economy, gross revenues and net earnings is likely associated with modest improvement in expectations around hiring and compensation,” said Joe Brusuelas, RSM US LLP chief economist. “Pluralities of 40% and 39%, respectively, indicated respondents expect the hiring and compensation environment to improve over the next 180 days, whereas only 29% and 34% experienced upticks during May. Although caution is the best description of these labor issues currently and in the near-term, there was a noticeable bounce from historic lows associated with each measure that mirrors our forecast of tough sledding ahead in a domestic labor market. Our most optimal scenario at the end of 2020 calls for unemployment of 10%.”
While the May responses show optimism, the ongoing pandemic still reveals areas of concern. Increased social activity during the summer leading to a second wave of infections, coupled with any fiscal or trade policy errors, could slow the pace of recovery. Furthermore, decreased current and expected capital expenditures on productivity could lead to long-term damage. Only 27% of business leaders stated now is a good time for increasing capital outlays (the foundation of improving productivity) and just 39% said they plan to boost capital spending in the next six months. This reluctance to invest could create an opportunity for large firms to increase their economic dominance, pushing medium-size firms out of the post-pandemic economy.
RSM will continue to publish monthly installments of the MMBI for the extent of the coronavirus 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. It also includes information about the recently enacted $600 billion Main Street Lending Program and related measures from the federal government that are meant to stem the fallout from this global health crisis.
The May 2020 MMBI data was collected between May 14 and May 28.
About the RSM US Middle Market Business Index
RSM US LLP and the U.S. Chamber of Commerce have partnered to present the RSM US Middle Market Business Index (MMBI). It is based on research of middle market firms conducted by Harris Poll, which 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.
Built in collaboration with Moody’s Analytics, the 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.
About RSM US LLP
RSM’s purpose is to deliver the power of being understood to our clients, colleagues and communities through world-class audit, tax and consulting services focused on middle market businesses. The clients we serve are the engine of global commerce and economic growth, and we are focused on developing leading professionals and services to meet their evolving needs in today’s ever-changing business environment.
RSM US LLP is the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in more than 120 countries. For more information, visit rsmus.com, like us on Facebook, follow us on Twitter and/or connect with us on LinkedIn.