The RSM US Middle Market Business Index (MMBI), presented by RSM US LLP in partnership with the U.S. Chamber of Commerce, dipped slightly to 130.0 in the third quarter, down from 132.3 in the previous quarter, on a seasonally adjusted basis. The survey results indicate strong economic and business conditions among middle market companies, with most senior executives (including CEOs and CFOs) expressing optimism about the economy, revenues, and earnings for the rest of 2024.
"Even with concerns about the end of the current business cycle as growth, hiring, and inflation slow, middle market firms are showing signs of sustained growth in this evolving segment of the U.S. economy," said Joe Brusuelas, chief economist at RSM US LLP. "As interest rates and financial costs ease, we anticipate a surge in business investment, improved revenues, and stronger earnings. Executives stuck in pessimism may miss a prime opportunity for growth."
The latest MMBI survey captured a strong sense of forward-looking optimism among middle market executives, even as concerns over rising price levels persist. Only 38 percent of respondents reported an economic improvement during the third quarter, while 34 percent said conditions remained the same. Despite this, 57 percent expressed confidence that the economy will improve in the final months of 2024 and into the first quarter of 2025.
Financial performance remained solid, with 45 percent of middle market executives noting higher revenues and 40 percent reporting an increase in net earnings. Looking ahead, 65 percent of respondents expect further revenue growth in the next six months, and 64 percent anticipate continued gains in net earnings.
Price pressures continue to be a challenge, as 65 percent of survey participants reported higher prices paid during the current quarter, and 67 percent expect costs to rise further. Nearly half (49 percent) have already passed these cost increases to customers, and 63 percent plan to do so in the coming months.
Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce, emphasized the need for policymakers to align with businesses' optimism. “American businesses are bullish on the economy and the future. Now, we need our elected officials to match that optimism with policies that will support and accelerate economic growth.” The Chamber has outlined policies to ensure at least 3 percent annual real economic growth over the next decade.
Capital expenditures remain strong, with 44 percent of middle market firms increasing outlays in the third quarter and 55 percent planning to do so in the next six months. As the Federal Reserve signals a potential pivot toward lower interest rates, RSM is closely monitoring the release of pent-up demand for investments in equipment, software, and intellectual property.
Interestingly, the survey highlighted a slowdown in hiring, with only 36 percent of firms increasing their workforce. While 54 percent of executives anticipate hiring more employees, RSM suggests this increase may not fully materialize. Firms appear to be holding onto labor at higher costs, benefiting from previous investments in technology that have bolstered productivity.
Labor costs remain a key issue, with 46 percent of executives reporting increased compensation to attract talent, and 62 percent expecting to raise wages further. The MMBI report notes that as capital expenditures yield productivity gains, slower wage growth and profit margin expansion could follow.
The survey results are based on data gathered from 404 respondents between July 8 and July 26, 2024.
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