U.S. middle market companies reported an average revenue growth of 6.9 percent in the fourth quarter of 2016, capping off a strong year of overall growth, according to the National Center for the Middle Market (NCMM). Combined with steady job gains, this finding from the NCMM's Q4 2016 Middle Market Indicator (MMI) points to strong fundamentals for middle market firms entering 2017.
"Steady employment and revenue growth marked a strong end to 2016," said NCMM Executive Director Thomas A. Stewart. "Looking ahead, executives anticipate continued growth in the first quarter, a fantastic sign for middle market businesses in 2017."
The survey was administered in early December 2016, one month after the presidential election. It obtained responses from 1,000 CEOs, CFOs and other C-suite members of middle market firms, which are defined as companies with between $10 million and $1 billion in annual revenues.
Growing Confidence in U.S. and Global Economy as Employment Soars
The middle market ended 2016 on a high note, with economic confidence at record highs. Confidence in the U.S. economy is up 14 points year-over-year at 81 percent, while confidence in the global economy is at 65 percent (18 points year-over-year) and local economies at 86 percent (10 points year-over-year).
In addition to the record-high economic confidence measured in Q4, quarterly employment growth is now at the highest level observed since the MMI was established in 2012. The NCMM observed strong, accelerating employment growth over every quarter in 2016 to reach 5.4 percent in Q4. This is up half of a point from Q3 and soars above the historical average growth rate of 3.4 percent.
Construction Gains Highlight Five Years of MMI Data
The construction industry in particular has seen rapid job growth over the past five years. In Q1 2012, the middle market construction industry reported a 2.7 percent loss in jobs, the weakest employment numbers of any industry. Five years later, the construction industry posted a 9.3 percent gain in Q4 employment numbers – the strongest such data of any surveyed industry for the period.
"Construction's remarkable employment gains punctuate the overall trend of rising jobs numbers we saw over the past five years," said Stewart. "On top of closing the year at 12.6 percent quarterly revenue growth, the sector's executives project solid revenue gains for the year to come."
New Products and Services Fuel Growth and Expansion
According to the latest MMI report, 40 percent of companies surveyed introduced a new product or service in 2016, the most common method of business expansion. Second to this, 32 percent of middle market companies expanded into a new domestic market over the past 12 months. Firms with annual revenues between $50M and $100M were the most likely to expand their business using these methods compared to middle market businesses both smaller and larger.
Looking ahead to 2017, 42 percent of executives say that their firms expect to introduce a new product or service and a similar 41 percent plan to expand into a new domestic market. Additionally, one in three (35 percent) of large middle market firms ($100M - $1B in revenue) plan to make an acquisition in the next 12 months to expand their business, outpacing the middle market average of one in four companies that are eyeing M&A activity in the year ahead.