The findings of the recent Q1 RSM US Middle Market Business Index (MMBI), showed a slight dip in business optimism, to 130.8 in the first quarter from 132.3 in the previous quarter on a seasonally adjusted basis. This quarter's survey findings underscore the robustness of the economy and the labor market, supported by middle market firms' continued reinvestment of earnings into productivity-enhancing initiatives.
Joe Brusuelas, chief economist at RSM US LLP, emphasized that despite the moderation in economic growth from last year's rapid 3.1 percent pace, middle market executives remain optimistic about the year ahead. The sustained investment in firms' productivity capabilities over the past three years has led to a significant increase in American productivity, averaging at 3.9 percent over the past three quarters. While such substantial gains are not sustainable, maintaining a level above 2.5 percent is promising for economic growth, employment rates, and price stability.
The survey results from the first quarter reflect the resilience of the economy, with 45 percent of middle market executives noting an improvement in current economic conditions. Additionally, 46 percent reported improvements in gross revenues and net earnings, while 48 percent accelerated their investments in capital expenditures. Looking ahead, 62 percent of executives anticipate economic conditions to improve over the next six months, with 67 percent expecting improvements in net earnings and revenues during the same period.
Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce, highlighted the ongoing strength of the U.S. economy, noting the positive outlook among middle market businesses despite regulatory challenges and workforce constraints.
Further demonstrating confidence in the future, 59 percent of executives expressed intentions to increase productivity-enhancing capital expenditures. Notably, for 14 consecutive quarters, most respondents have planned to boost spending on software, equipment, and intellectual property.
Although pricing concerns persist, with 73 percent of executives reporting higher prices for goods and services, RSM anticipates that middle market firms will retain some pricing power due to strong aggregate demand. Hiring and compensation remained robust in the first quarter, with 44 percent of executives increasing hiring and 58 percent intending to do so over the next six months. Additionally, 54 percent increased compensation to attract workers, with 65 percent expecting to do so this year. With the economy at full employment, wage competition for skilled employees will remain challenging.
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