Umpqua Bank released the findings of its annual Business Barometer, an in-depth study into the mood, mindset and strategic priorities of small and middle market businesses across the U.S. For the first time in its six-year history, the study shows a widening gap between the outlook and plans of middle market companies and small businesses. Middle market optimism and key growth indicators have surged to six-year highs, while small businesses proceed cautiously as they manage persistent impacts of higher costs for goods and capital.

Since 2019, middle market companies (defined as $10 million--$500 million in annual revenue) are consistently more optimistic and ready to make a variety of strategic investments than smaller businesses. However, the difference between the two sectors' optimism—which had been fairly narrow—widened sharply in 2024. This year, 68% of middle market companies rate the economic outlook as excellent or good compared to just 29% of small businesses.

Economic Outlook Over Time

According to Umpqua Bank President Tory Nixon, middle market companies are poised to accelerate strategic investments and plans after a season of caution, while small businesses are even more inclined this year to hold steady as margins remain tight.

"It's a tale of two economies right now," said Nixon. "While businesses of all sizes have proven resilient during a remarkable period of uncertainty and disruption, middle market companies have adapted especially well to the economic pressures of the past couple years. They are poised to move forward with the most confidence we've seen since our study began."

Notable findings from this year's Business Barometer include the following:

Growing Middle Market Optimism Sparks Plans for Growth
Nearly 7 in 10 middle market companies rank the current economy favorably, surpassing a majority for the first time and 22 points higher than last year. In the next 12 months, more companies than in any previous study expect demand for products and services to increase (70%) and greater profitability (60%). They are also more likely than ever to invest in digitization (88%), finance expansion plans (65%), expand their real estate footprint (60%), add employees (54%) and consider acquiring (52%) or merging (43%) with another business.

Economic Divide Widens Between Middle Market and Small Businesses
In contrast to the middle market, small businesses are less optimistic than they've been since 2020. Though fewer list recession as a top concern this year (33%), inflation concerns spiked again after declining in 2023. Fewer than ever expect increased demand for goods or services (43%), and expectations for profitability growth also dipped to the lowest level in four years (38%). Small businesses' current mood is reflected in more limited plans for the next 12 months: fewer than in the last three years are likely to add employees (28%), finance expansion (25%), expand their real estate (23%), make significant changes to products or services (33%), or invest in tools that protect payment systems (40%) and improve efficiency (57%).

"Middle market companies have the scale and capital to grow in today's market. More of them are growth-minded than last year and investing in AI, automation and sophisticated tools to safeguard their operations and customers," said Richard Cabrera, Head of Commercial Banking at Umpqua Bank. "With fewer resources and tighter margins, smaller enterprises have shifted more of their attention to managing the prolonged financial challenges and risks associated with elevated interest rates and inflation."

Middle Market Companies Are Rapidly Embracing Generative AI
Nearly 8 in 10 middle market companies report either moving forward quickly to implement the technology across their organization (42%) or for at least a few specific tasks or functions (36%). They are also prioritizing adding personnel with generative AI experience, with 86% likely to hire for the skillset in the next 12 months. Investing in AI is also a top strategic priority (56%), which ranks first across 10 other investment options. A strong majority believe AI is having, or will have in the next 12 months, a significant impact on profitability (70%), acceleration of new products (69%), productivity (72%) and their competitive advantage (71%).

Small businesses are also adopting generative AI, albeit more slowly, with 28% prioritizing broad implementation or more targeted use across a few tasks.

A Majority of Middle Market Companies Bring Manufacturing and Supply Chains Back to U.S.
While supply chain impacts of the past few years have eased significantly for all businesses, most middle market companies continue looking for new routes and partners. In the last 12 months, 51% have moved manufacturing or supply chains back to the U.S., continuing the onshoring acceleration noted last year. Another 73% with operations abroad are likely to move or shift them elsewhere in the year ahead.

Middle Market Companies Safeguard Against Cyber-Attacks and Real-Time Fraud
Cybersecurity continues to be a top priority for middle market companies: 41% were the victim or target of a cyberattack in the last year. More than 8 in 10 are likely to invest in financial tools to protect payments systems in the next 12 months. More than 6 in 10 now leverage instant payment technology. Of those, 93% have or are planning to implement corresponding safeguards to protect against real-time fraud. Instant payment adoption rates for small businesses stand at 43%, with 66% of these having already implemented or planning to implement corresponding safeguards in the next year.

Small Business Delays, Middle Market Accelerates Decision-Making Ahead of Election
Small and middle market businesses are responding differently to the upcoming congressional and presidential elections in November. Nearly half of middle market companies say they are expediting key decisions before elections, with only 13% delaying them. Meanwhile, small businesses are more likely to delay (23%) than accelerate (14%) key decisions, with more than half indicating no impact on decision-making.

Businesses choosing to delay decisions, regardless of size, are most likely to postpone long-term strategic plans (63%), expansion plans (40%) and hiring (39%).