The optimism that spawned a long period of economic expansion in the middle market seems to have become more uncertain as revenue and employment growth rates reported a slowdown since last quarter with confidence also sliding downward, most notably in the services and financial services industries.

Data from the 4Q Middle Market Indicator (MMI) released by the National Center for the Middle Market (NCMM) reveals that both revenue (8.6 percent to 7.9 percent) and employment growth (6.4 percent to 5.4 percent) rates have fallen since last quarter. Further, short-term expectations have diminished significantly (79 percent to 74 percent) and confidence in the national economy has slipped to 86 percent. 

These numbers remain high by historical standards, however. And the share of middle market companies reporting improved year-over-year company performance has reached an all-time high at 73 percent. In fact, more middle market companies than ever before in the history of the MMI have reported overall revenue growth compared to one year ago and the outlook for 2019 also remains strong.

The long-term outlook for employment growth in 2019 is less rosy with forecasts falling significantly to 3.8 percent. Talent management issues is a top concern as looking for ways to acquire and retain the best people to move businesses forward remains a challenge in a full-employment economy. Further, cost concerns are rising, especially related to imports, exports and tariffs.

"Middle market companies have closed the books on a very satisfying 2018, but they face the new year with uncertainty and anxiety," said NCMM Executive Director Thomas A. Stewart. "Despite companies seeing warning signals, they are not at this point holding back on investment and, as of now, executives remain optimistic."

Throughout 2018, confidence in the U.S. economy has consistently stayed above 85 percent, currently at 86 percent for Q4. Local (89 percent) and global (73 percent) economic confidence showed more volatility with both currently coming in at their lowest levels in 2018. Despite these dips however, all three metrics remain well above the seven-year average recorded by the MMI.

The two key challenges still facing the middle market, which have been a trend all year, are talent and cost. The report found that   talent concerns are near their all-time high, with 62 percent of middle market leaders expressing worry about retaining the best people to meet the current demands of their business., Costs are also weighing heavily on leaders' minds. Middle market leaders are less concerned with governmental issues, rules, and regulations apart from healthcare and tariffs.

"As middle market companies settle in to 2019, they need to prepare themselves for the unexpected and develop their top talent accordingly since retention has been a major challenge this past year," said NCMM Managing Director Doug Farren. "Additionally, middle market executives need to strengthen their agility to adapt with the current business climate."