Middle-market companies reported year-over-year revenue growth of 6.3 percent in the first quarter of 2016. Revenue growth registers ahead of the previous quarter's numbers, but is down from the 7.4 percent growth observed one year ago, according to the Q1 2016 Middle Market Indicator (MMI) released by the National Center for the Middle Market (NCMM).

"We're seeing renewed firmness in the middle market, following a year in which growth rates, while strong, subsided a bit. After eight years of expansion, this healthy resilience is inspiring optimism for the future," said NCMM Executive Director Thomas A. Stewart. "Over half of executives predict gross revenue growth this year and one-third predict growth in employment."

Revenue Growth Remains Strong

Mean total revenue growth rates throughout the middle market are robust, up to 6.3% from 6.1% in Q4. Large middle-market companies – those with revenue between $100 million and $1 billion – showed the strongest growth, with posted gains of 6.9 percent. Core middle market firms ($50 million to $100 million) held a comparable 6.5 percent; while smaller companies ($10 million to $50 million) posted somewhat softer gains of 5.9%.

Plans to Drive Growth Involve Expansion

To promote revenue growth, executives are focusing on growing their core business. Forty-one percent are looking to drive growth by investing in increased capacity, exploring new channels of business and/or sourcing additional partners. Middle-market companies with $50 million to $100 million in annual revenue are particularly intent on expanding their services in the coming year; more than half (53%) intend to introduce a new product or service in the next 12 months, up from 34% in the last quarter.

Talent Retention Leaps Into the Spotlight

With few companies actively seeking to increase their employment numbers, holding on to current talent is a high priority for middle market executives. Eighty-three percent consider their current workforce size to be "just right," and only one third (34%) expect to increase the size of their workforce in the coming year.

Survey respondents were asked to rank the top two areas where they were focusing talent retention efforts. The top two responses were "improving salaries" and "implementing/improving flexible work arrangements," with 52% and 44% of respondents citing these focal points, respectively.

"Middle-market companies are really dialing into what their employees need," said Stewart. "Prioritizing improving salaries and providing flexible work arrangements demonstrates a recognition of and response to the demands of skilled employees. The middle market is adjusting to provide the work environments and compensation required to attract and keep the best talent."

Economic Confidence, International Concerns

Reflecting strong, stable growth rates in Q1 2016, the middle market's confidence in local, U.S. and global economies is rebounding across the board. Following a slight dip in Q4 2015, confidence levels have risen in Q1 2016. Executives are most confident in the local and U.S. economies, where current sentiment outpaces the average confidence level of the prior three years.

At the same time, the middle-market continues to keep a watchful eye on international affairs. Only half (51%) of executives say they are confident in the global economy. This is an increase from Q4 2015 (47%) but is down from year-over-year numbers (54% in Q1 2015).

A strong focus on global affairs is demonstrated by middle-market executives' rankings of threats to the U.S. economy over the next 12 months. Four of the top five ranked threats stem from international rather than domestic concerns. Slowing global economic growth is the top perceived threat, followed by political uncertainty in the U.S., volatility in Chinese stock markets, international political instability and slowing industrial output in China. Outlook for the year ahead is moderate; when asked to estimate how the U.S. economy would perform in 2016, about half of respondents (53%) projected moderate to strong growth (1% or greater).

The middle market is one of the major engines powering the United States economy, consistently delivering top-line and employment growth substantially above those of small or big business. Roughly one-third of total employment and GDP in the U.S. are attributed to middle market companies – defined as companies with annual revenues between $10 million and $1 billion. If looked at as an individual market segment, the middle market would be the world's fifth largest global economy, between the economies of Germany and Japan.

The Middle Market Indicator is a product of the NCMM's quarterly survey of 1,000 middle market C-suite executives from all industries, providing insights into their companies' performance and opinions on the economy's condition.

The MMI surveys 1,003 executives (CEOs, CFOs and other members of the C-Suite) from the middle market each quarter to examine topics related to business capabilities and performance, growth drivers and economic outlook among other topics. This quarter's MMI was fielded March 10 to March 21, 2016. It is weighted to accurately reflect the size, industry-wide and geographic distribution of this sector, which includes companies ranging from $10 million to $1 billion in annual revenue. The survey is conducted by RTi Research on behalf of the National Center for the Middle Market.