The National Center for the Middle Market (NCMM) released its 3Q Middle Market Indicator (MMI) today with data showing a decrease in growth rate for middle market companies. At 5.8 percent, it fell nearly three points from the Q2 report.

The proportion of firms that grew 10 percent or more in the last 12 months declined from 38 percent in Q2 to 28 percent in Q3, and the rate of employment growth has slowed from 6.4 percent to 4.1 percent. As with revenue growth, fewer companies are adding workers at a fast pace (10 percent or more). That figure stands at 23 percent, down from 30 percent three months ago.

Though growth has slowed, it is still strongly positive, and a majority of middle market executives say their companies’ overall performance is better today than it was one year ago. However, this number is declining, too, from 68 percent last quarter to 60 percent currently. The all-time high of 73 percent was recorded less than one year ago at the close of 2018. The Short Term Index, which is calculated based on business climate perceptions and expected sales and demand for the three months ahead, has been on a downward trajectory since mid-2018. The index now sits at its all-time low at 49.

A slight majority of businesses expect continued top-line growth in the year ahead. However, just 35 percent expect to add people. Those that do plan to hire say they will do so at the significantly slower rate of 2.5 percent, the lowest projection since 2014. While middle market leaders tend to underestimate forecasts of future growth and hiring, the gap between projected revenue growth and actual performance closed notably this quarter, and the actual hiring rate fell below what had been projected a year ago for only the second time in MMI history.

“For the last few quarters, our data have been predicting that growth would cool off, and now it has.” said Thomas A. Stewart, executive director of the NCMM. “But we can’t leap to conclusions about what it means — is this a single-quarter anomaly, or the first of a coming trend?”

Compared to the end of 2018, more middle market leaders now say they would save an extra dollar rather than put it immediately to work. Last quarter saw the first notable change in the savings-to-investment ratio since mid-2015. This quarter, the proportion of savers rose once again, from 35 percent three months ago to 37 percent.

“As we know, middle market leaders tend to under promise and over deliver,” said Doug Farren, managing director of the NCMM. “However, we’ll certainly be watching future quarters closely for signs of further softening growth.”

The middle market continues to grow significantly faster than both big and small business, and a majority of executives expect company growth to continue, albeit at slower rates. At the same time, middle market companies appear to be building cash positions and putting greater emphasis on cost and efficiency measures to ensure they are prepared for whatever the coming months bring.