The nation’s 200,000 middle market businesses are an economic engine driving the U.S. recovery, growing revenue at a rate of five percent during 2013, which was five times higher than the S&P 500. According to the National Center for the Middle Market's (NCMM) latest quarterly Middle Market Indicator (MMI), mid-sized firms grew employment last year faster than small and large companies at a rate of 2.5 percent, which created 1.2 million jobs. The MMI also revealed that mid-market executives believe continued government uncertainty and concerns over compliance with certain federal regulations are moderating the segment’s outlook for 2014, which projects 4.3 percent revenue and 2.2 percent employment growth over the next 12 months.

The U.S. middle market, made up of businesses with revenue between $10 million and $1 billion, contributes one-third of non-government U.S. GDP and accounts for 44.5 million jobs, or one-third of total U.S. employment. With a projected employment growth rate of 2.2 percent, the middle market could add as many as one million jobs to the U.S. economy in 2014. Although this outpaces national growth trends, the middle market would create 200,000 less jobs than last year.

"The middle market continues to deliver consistently strong performance during both recessionary and growth periods of the overall economy. Growing revenue five times greater than S&P 500 companies demonstrates the capacity of this agile sector to contribute to the broader economic recovery, but there is still work to be done. For starters, enduring uncertainty over federal policy must finally be addressed,” said Dr. Anil Makhija, Academic Director at NCMM, a partnership of GE Capital and The Ohio State University Fisher College of Business.

Moderating Projections in 2014

According to the MMI, the federal government is viewed as a barrier rather than an enabler of growth. 52 percent of mid-market executives believe that government uncertainty is stifling economic growth and 58 percent say federal policy uncertainty has impacted their business planning. As a result, mid-sized firms have discouraged hiring (63 percent) and report decreased likelihood for capital investment (56 percent).

"This data should make it very clear to policymakers that continued uncertainty does have real consequences on this segment of the economy and economic growth nationwide,” Makhija said.

Role Of Government In Promoting Growth

“When policymakers commit to creating a business-friendly climate, the capacity for middle market companies to grow is unleashed,” said Makhija.

According to the MMI, more than 80 percent of middle market executives in Texas have realized the benefits of tax incentives for capital investment and business growth. It’s no wonder then, that 73 percent are satisfied with the state’s business climate. This isn’t the case in every state, however. Just half of middle market executives in Ohio were satisfied with the business climate. This rate dropped to 34 percent in California and 20 percent in Florida.

When it comes to federal policy, middle market executives affirm that high corporate tax rates and a lack of tax incentives are impeding growth. Nationally, 42 percent of middle market executives believe that corporate tax rates are too high and have a significant negative effect on their business.

What’s more, as the government approaches its current debt ceiling, executives continue to express concern that a government default would increase interest rates for their business while reduce consumer and business confidence.

Opportunities For Regulatory Relief

According to the MMI, 77 percent of mid-market firms are required to follow federal regulations. These firms spend 8 percent of their workweek as well as 8.3 percent of annual revenue on out of pocket costs to ensure compliance with regulations. Moreover, 6.3 percent of firms have to outsource expertise to understand the regulations.

“Mid-sized firms in the middle market don’t have exemptions like small firms nor can they absorb the costs like large companies,” Makhija said. “The middle market is caught in the middle of shouldering the burden.”

Survey Methodology - The MMI surveys 1,000 executives (CEOs, CFOs, and other C-Suite executives) from the middle market's nearly 200,000 companies, focusing on their business capabilities and performance, growth drivers, and economic outlook. This quarter’s MMI was fielded December 2-12. It is weighted to accurately reflect the size and geographic distribution of this sector, which includes companies with revenues between $10 million and $1 billion.

The quarterly MMI tracks responses on the following topics: Gross revenues performance; Overall company performance; Employment performance; Expected 12-month gross revenue and employment growth; Confidence in the global economy, U.S. economy and local economy; Key business challenges; Top areas for investment dollars; Perceptions on topical issues and challenges relevant to the U.S. middle market.

The survey is conducted by the independent research firm RTi on behalf of the NCMM.

The National Center for the Middle Market (NCMM) was founded in 2011 in partnership with GE Capital and is located at The Ohio State University's Fisher College of Business. The Center is the leading source of research on the U.S. middle market economy.