The RSM US Middle Market Business Index (MMBI), presented by RSM US LLP (“RSM”) in partnership with the U.S. Chamber of Commerce, rose to 132.0 in the second quarter from 130.7 in the prior period on a seasonally adjusted basis. The MMBI survey results reflect a sustained business expansion characterized by historically low unemployment, strong household consumption and robust business revenues.

“The data from this quarter’s MMBI data highlights a remarkable period of stability inside the U.S. middle market,” said Joe Brusuelas, chief economist with RSM US LLP. “Companies’ willingness to invest is helping fuel a productivity boom that is currently working its way through the American economy. If it continues, this will lead to a virtuous cycle of improved growth, low unemployment and price stability.”

Firms Report Strong Financial Performance, Majority Plan to Boost Productivity-Enhancing CapEx

RSM’s survey results show that despite the modest improvement in confidence in the second quarter, 40% of senior executives at middle market firms indicated the economy had improved and 32% said conditions had deteriorated. RSM estimates this is due to the long tail of the pandemic and subsequent price shock extracting a powerful toll on smaller firms, which continue to face a challenging environment of higher wages and input costs.

The survey found that financial performance for middle market firms remained strong in the second quarter. Nearly half of the respondents (47%) stated their gross revenues had improved in the current quarter, while 45% said net earnings increased. Far fewer, 25% and 26% respectively, said revenues and earnings had deteriorated. Looking ahead, 68% of survey participants said they expect gross revenues to improve over the next six months, and 61% said the same about net earnings. Fifty-three percent of respondents expect the general economy to improve.

The improvement in net earnings and revenues led a majority of executives to state they intend to boost productivity-enhancing capital expenditures over the next six months. This was the 15th consecutive MMBI survey that found such an intent. While RSM remains confident in the direction of middle market capital expenditures, 65% of executives indicated a real and abiding concern about the cost of capital.

“It’s encouraging to see middle market business leaders sustain their overall optimism this quarter,” said Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce. “Higher revenues, willingness to raise expenditures and stable hiring trends reflect signs of remarkable growth in the broader economy despite rising regulatory burdens and workforce challenges."

Pricing Has Stabilized, Overall Hiring Remains Consistent  

MMBI data suggests that prices have steadied, and midsize organizations have made the adjustment to a higher post-pandemic-era level of prices. Prices paid have stabilized over the past four quarters, with an average of 71% of executives stating they had paid higher prices. Sixty-seven percent of respondents said they expect to pay more for goods and services over the final six months of the year. Additionally, 52% of executives reported passing along higher costs in the second quarter and 62% said they intend to do so over the next six months.

The MMBI survey found that overall hiring remained consistent with the previous quarter, as 44% of executives said they had increased hiring. Seventeen percent of respondents said they had slowed hiring, and RSM anticipates hiring to slow somewhat to a more sustainable pace in the second half of the year as economic growth eases to a 2.4% average pace for the full year.

Amid a continuously tight labor market, 74% of surveyed executives reported they are significantly or somewhat concerned about access to skilled labor; 75% said the same about the cost of labor. Unsurprisingly, 57% said they had increased compensation in the second quarter and 61% expect to do so in the second half of the year.

Firms Cautious About Future Borrowing, Carefully Managing Inventories

The ability of midsize firms to access capital necessary for expansion improved significantly in the second quarter, with 29% of firms indicating that borrowing had become less tight, up from 20% earlier in the year. Looking ahead, executives expressed doubt about their ability to borrow over the next six months; only 32% expect easier access to capital, down from 43% in the first quarter.

Firms are also continuing to manage inventory accumulation carefully. Only 40% of respondents implied that they increased stocks, and 51% indicated they intend to do so over the next six months.

The survey data that informs this index reading was gathered from 402 respondents between Apr. 1 and Apr. 22, 2024.