OREANDA-NEWS. October 30, 2012.  The National Center for the Middle Market (NCMM) today announced that middle market companies increased headcount by 2.2%, about 950,000 jobs, over the last 12 months, outpacing the overall economy which grew employment by 1.7%. Middle market firms also grew revenues in the past 12 months at more than three times the rate of S&P 500 firms, growing at 5.5% versus 1.6%.

However, the new research from the NCMM at Fisher School of Business at The Ohio State University also finds a softening in expectations for middle market firms. Over the next 12 months, projected employment growth has dropped to 1.3%, and projected revenue growth has fallen to 3.7%. These forecasts are important because the middle market constitutes nearly one-third of the private sector GDP and employment in the U.S.

“Though slowing, the middle market continues to create jobs and grow revenue despite weak confidence in both the national and global economies,” said Dr. Anil Makhija, academic director of the National Center for the Middle Market. “However, this quarter’s indicator shows that serious challenges for middle market companies are taking their toll, imposing lower expectations for employment and revenue growth in the year ahead. This is concerning for the U.S. economy as a whole given the middle market’s significant contribution to private sector employment and GDP.”

Revenue growth has exhibited a clear pattern of decline over the past three quarters of this year. For the previous 12 months, average revenue growth fell from 6.9% in Q1, to 6.1% in Q2, and now 5.5% in the Q3 survey. The percentage of middle market executives expressing confidence in the U. S. economy has been low, and has fallen from 15% in Q1 to 12% in Q2, and now to 11% in Q3.

Nevertheless, the latest full year of growth in revenues, going back from the September third quarter survey, shows that the middle market had been growing so far at a faster rate than all but two of the world’s twenty largest economies – China and Indonesia.

Despite recent slowing of revenue growth and overall economic concerns, further research from the center shows that the US middle market grew employment at a faster rate than both small businesses and large firms in 2011, and has increased headcount throughout 2012. Middle market companies grew headcount four times as fast as large companies last year, adding 1.95 million jobs and increasing overall employment by 3.8% over the previous year. Large companies grew employment by just 0.8%.

The Middle Market Indicator (MMI) is a quarterly survey of 1,000 middle market executives, published by the NCMM, a partnership between The Ohio State University Fisher College of Business and GE Capital. The survey examines the health and outlook of middle market businesses by analyzing capabilities, performance, growth drivers and overall economic outlook.

Other Q3 MMI highlights Include:

More than 70% of the middle market executives said they were not confident or somewhat not confident about global economic prospects. This has improved from 78% in the second quarter.
The number of companies who said they would hold cash dropped in the third quarter, from 50% in Q2 to 44% in Q3.
Middle market companies expect gross revenue to grow by 3.7% in the next 12 months, a decline from second quarter expectations of 4.8%, and 5.2% for first quarter.
A large majority of leaders at middle market companies cited uncertainty about healthcare costs as their major challenge, a persistent concern as healthcare and certain regulations remain in flux.

Global and U.S. confidence remains muted

The middle market overall continues to show a lack of confidence in the global and U.S. economies – driven by concerns over health care costs, the ability to maintain margins, the cost of doing business, and uncertainty regarding government actions. Concerns about the U.S. economy worsened slightly in the quarter: 52% of respondents said they were not confident or somewhat not confident about the domestic economic outlook compared with 50% in the previous quarter.