RSM US Middle Market Business Index Dips Modestly in December But Points to Brighter Business Conditions in 2021
December survey results indicate that while the pandemic continued troubling the middle market through the end of 2020, executives are hopeful for a recovery by mid-2021
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 December 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. December’s data revealed that the MMBI composite score remained robust, down only modestly from 123.6 in November to 121.2. The results imply that while the middle market continued to feel the negative effects of the pandemic in December, executives have regained optimism for improved business conditions by mid-2021 and look forward to a brighter six months ahead.
The December MMBI data reflects a minor decline in sentiment around current conditions due to continued pandemic-related concerns, with only 39% of respondents indicating that the economy improved in December and less than half reporting an improvement in gross revenues (46%) and net earnings (45%). However, despite a challenging December, the index also revealed a resurgence in forward-looking optimism among executives, bolstered by hopes for the widespread distribution of a vaccine in 2021. Fifty-nine percent of respondents stated they expect the economy to improve over the next six months, up from 49% in November. This confidence is reflected in executives’ expectations for revenues and earnings, with 57% expecting strong gross revenues and 61% anticipating an improved earnings environment by June.
“The December MMBI reading indicates that middle market firms are well positioned to get through the last difficult days of the pandemic and will be ready for the strong economic expansion that will define the early phases of the economic recovery,” said RSM Chief Economist Joe Brusuelas. “This dovetails with our own 2021 forecast, which expects that once a COVID-19 vaccine is widely distributed, the economy will boom and grow nearly 4.5% this year, with a growth rate exceeding 5% in the second half of the year. We anticipate 2021 will be a robust year of recovery, resilience and reimagination for the American middle market.”
Despite facing continued challenges in the current business environment, firms expressed a hopeful position on hiring, compensation and capital expenditures in 2021. While only 39% of respondents noted a rise in hiring in December, 54% expect to increase hiring in the first six months of the year, and 55% anticipate improved compensation. Additionally, 52% of executives expect to increase outlays on productivity-enhancing capital expenditures – such as software, equipment and intellectual property – over the next six months, underscoring the undeniable role advanced technology will play for middle market firms seeking to meet the challenges of the post-pandemic economy.
Other notable findings from the December MMBI include a dimmer outlook on pricing conditions, as firms continue to indicate that they do not expect to be able to pass along rising prices to consumers. While 60% of respondents noted an increase in prices paid in December and 65% expect sustainment of that condition through 2021, only 42% of respondents indicated an increase in prices received, with 51% expecting an increase over the next six months. In addition, middle market firms continued to carefully manage inventory levels in December, with 46% indicating an increase in their stock and 52% stating they expect to increase inventory over the next six months. This cautious position will enable the middle market to successfully respond to the significant economic expansion anticipated for 2021.
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 December MMBI data was collected between December 7 and December 18, 2020.
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.
The responses to each question are reported as diffusion indexes. The MMBI is a composite index computed as an equal weighted sum of the diffusion indexes for 10 survey questions plus 100 to keep the MMBI from becoming negative. A reading above 100 for the MMBI indicates that the middle market is generally expanding; below 100 indicates that it is generally contracting. The distance from 100 is indicative of the strength of the expansion or contraction.
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 51,000 people across 123 countries. For more information, visit rsmus.com, like us on Facebook, follow us on Twitter and/or connect with us on LinkedIn.