The RSM US Middle Market Business Index (MMBI), presented by RSM US LLP ("RSM") in partnership with the U.S. Chamber of Commerce, remained steady in October, indicating the U.S. economy is continuing to emerge from the pandemic-induced recession. The Q4 2020 MMBI reading eased modestly to 127.5 in October from 127.8 in September, with middle market executives' outlooks on the economy, revenues, net earnings and hiring remaining essentially unchanged. The data implies that while business leaders do not expect a V-shaped recovery, they do anticipate a continued improvement in business conditions through early 2021.

"The recent intensification of COVID-19 infections in the U.S. and Europe has yet to dampen sentiment, but the rapid rise in cases, coupled with volatility in equity markets, suggests limited upside as the pandemic rages on," said Joe Brusuelas, RSM US LLP Chief Economist. "Even without widespread shutdowns, consumers and businesses are likely to pull back if the pandemic worsens, resulting in significant economic damage. However, it is important to note that our survey was conducted before the U.S. presidential election and Pfizer and Moderna's promising vaccine news, which may change the perception of current and future-looking business conditions well into next year."

Despite the ongoing pandemic, the October data suggest that the middle market remains on an upward trajectory, with executives' confidence in economic and financial conditions holding relatively steady month-over-month. Fifty-one percent of respondents stated the economy improved in October, and for the second consecutive month, 68 percent expect continued growth through April 2021. While the percentage of executives who said revenues improved dipped slightly to 47 percent in October from 50 percent in September, the future remains rosier, with 64 percent expecting an uptick by early spring. Accordingly, only 47 percent of respondents stated that net earnings improved in October, but 63 percent expect improvement by next April.

In addition, firms maintained a cautious position on hiring and compensation but saw modest improvements in capital expenditures. Only 38 percent of executives noted an improvement in hiring in October, and 56 percent intend to boost hiring over the next six months. Additionally, just 40 percent of respondents reported that they increased compensation in October, while 53 percent intend to do so by April 2021. In a positive turn, capital investments were up slightly in October, with 40 percent of executives stating they increased outlays on productivity-enhancing investments and 53 percent indicating they will do so over the next six months.

"As business leaders cautiously navigate an uncertain and uneven economic recovery, it is encouraging that the Middle Market Business Index holds steady. However, it's clear that without additional support soon, the recovery could quickly backslide," said Neil Bradley, Executive Vice President and Chief Policy Officer at the U.S. Chamber of Commerce. "That's why the U.S. Chamber is urging Congress and the White House to come together now on a much-needed relief package to support small and mid-sized businesses, and disproportionately impacted industries, during this precarious period."

Reopening & Racial Equity Remain Top of Mind

The Q4 MMBI also explored views on reopening businesses during COVID-19, which will be released as part of RSM's second special report on the middle market's response to the pandemic in February 2021, and the importance of advancing racial equity within their corporate culture amid the backdrop of social unrest in the U.S.

Regarding reopening, middle market businesses have differing views about how long the U.S. economy will remain partially shuttered by the coronavirus pandemic. Forty-one percent of respondents expect the ongoing pandemic to prevent full reopening for another six to nine months, with 19 percent anticipating nine months to a year. Meanwhile, roughly 30 percent of executives expect reopening to take less than six months, while 9 percent expect the process to take a year or more. Regardless, the development of a vaccine remains imperative, with more than 80 percent of respondents stating that a vaccine will be integral to successfully reopening the economy.

Additionally, the MMBI revealed that social unrest in the U.S. has reignited important conversations about racism and discrimination, and corporate America is being held to a new set of standards and expectations when it comes to addressing these urgent issues. A strong majority of executives said attending to issues around racial equity is good for business (82 percent) and that their organizations are taking the right actions to address racial tensions (87 percent). However, despite these sentiments, just 28 percent of respondents in the MMBI survey made a public statement in support of racial equity or facilitated discussions among their employees about the topic (27 percent).

The full analysis of how the middle market is addressing racial equity will be included in a separate RSM insight article in early 2021.

The survey data that informs the index reading was gathered between October 5 and October 23, 2020.