Overall sentiment improves as firms continue
productivity-boosting investments
CHICAGO, June 20,
2024 /PRNewswire/ -- The RSM US Middle Market Business
Index (MMBI), presented by RSM US LLP ("RSM") in partnership with
the U.S. Chamber of Commerce, rose to 132.0 in the second quarter
from 130.7 in the prior period on a seasonally adjusted basis. The
MMBI survey results reflect a sustained business expansion
characterized by historically low unemployment, strong household
consumption and robust business revenues.
"The data from this quarter's MMBI data highlights a remarkable
period of stability inside the U.S. middle market," said
Joe Brusuelas, chief economist with
RSM US LLP. "Companies' willingness to invest is helping fuel a
productivity boom that is currently working its way through the
American economy. If it continues, this will lead to a virtuous
cycle of improved growth, low unemployment and price
stability."
Firms Report Strong Financial Performance, Majority Plan to
Boost Productivity-Enhancing CapEx
RSM's survey results
show that despite the modest improvement in confidence in the
second quarter, 40% of senior executives at middle market firms
indicated the economy had improved and 32% said conditions had
deteriorated. RSM estimates this is due to the long tail of the
pandemic and subsequent price shock extracting a powerful toll on
smaller firms, which continue to face a challenging environment of
higher wages and input costs.
The survey found that financial performance for middle market
firms remained strong in the second quarter. Nearly half of the
respondents (47%) stated their gross revenues had improved in the
current quarter, while 45% said net earnings increased. Far fewer,
25% and 26% respectively, said revenues and earnings had
deteriorated. Looking ahead, 68% of survey participants said they
expect gross revenues to improve over the next six months, and 61%
said the same about net earnings. Fifty-three percent of
respondents expect the general economy to improve.
The improvement in net earnings and revenues led a majority of
executives to state they intend to boost productivity-enhancing
capital expenditures over the next six months. This was the 15th
consecutive MMBI survey that found such an intent. While RSM
remains confident in the direction of middle market capital
expenditures, 65% of executives indicated a real and abiding
concern about the cost of capital.
"It's encouraging to see middle market business leaders sustain
their overall optimism this quarter," said Neil Bradley, executive vice president and chief
policy officer at the U.S. Chamber of Commerce. "Higher revenues,
willingness to raise expenditures and stable hiring trends reflect
signs of remarkable growth in the broader economy despite rising
regulatory burdens and workforce challenges."
Pricing Has Stabilized, Overall Hiring Remains Consistent
MMBI data suggests that prices have steadied, and
midsize organizations have made the adjustment to a higher
post-pandemic-era level of prices. Prices paid have stabilized over
the past four quarters, with an average of 71% of executives
stating they had paid higher prices. Sixty-seven percent of
respondents said they expect to pay more for goods and services
over the final six months of the year. Additionally, 52% of
executives reported passing along higher costs in the second
quarter and 62% said they intend to do so over the next six
months.
The MMBI survey found that overall hiring remained consistent
with the previous quarter, as 44% of executives said they had
increased hiring. Seventeen percent of respondents said they had
slowed hiring, and RSM anticipates hiring to slow somewhat to a
more sustainable pace in the second half of the year as economic
growth eases to a 2.4% average pace for the full year.
Amid a continuously tight labor market, 74% of surveyed
executives reported they are significantly or somewhat concerned
about access to skilled labor; 75% said the same about the cost of
labor. Unsurprisingly, 57% said they had increased compensation in
the second quarter and 61% expect to do so in the second half of
the year.
Firms Cautious About Future Borrowing, Carefully Managing
Inventories
The ability of midsize firms to access capital
necessary for expansion improved significantly in the second
quarter, with 29% of firms indicating that borrowing had become
less tight, up from 20% earlier in the year. Looking ahead,
executives expressed doubt about their ability to borrow over the
next six months; only 32% expect easier access to capital, down
from 43% in the first quarter.
Firms are also continuing to manage inventory accumulation
carefully. Only 40% of respondents implied that they increased
stocks, and 51% indicated they intend to do so over the next six
months.
The survey data that informs this index reading was gathered
from 402 respondents between Apr. 1 and Apr.
22, 2024.
About the RSM US Middle Market Business
Index
RSM US LLP and the U.S. Chamber of Commerce have
partnered to present the RSM US Middle Market Business Index
(MMBI). It is based on research of middle market firms conducted by
Harris Poll, which began in the first quarter of 2015. The survey
is conducted four times a year, in the first month of
each quarter: January, April, July and October. The survey
panel consists of approximately 1,500 middle market executives and
is designed to accurately reflect conditions in the middle
market.
Built in collaboration with Moody's Analytics, the MMBI is borne
out of the subset of questions in the survey that
asks respondents to report the change in a variety of
indicators. Respondents are asked a total of 20 questions patterned
after those in other qualitative business surveys, such as those
from the Institute of Supply Management and National Federation of
Independent Businesses.
The 20 questions relate to changes in various measures of their
business, such as revenues, profits, capital expenditures, hiring,
employee compensation, prices paid, prices received and
inventories. There are also questions that pertain to the economy
and outlook, as well as to credit availability and borrowing. For
10 of the questions, respondents are asked to report the change
from the previous quarter; for the other 10 they are asked to state
the likely direction of these same indicators six months
ahead.
The responses to each question are reported as diffusion
indexes. The MMBI is a composite index computed as an equal
weighted sum of the diffusion indexes for 10 survey questions plus
100 to keep the MMBI from becoming negative. A reading above 100
for the MMBI indicates that the middle market is generally
expanding; below 100 indicates that it is generally contracting.
The distance from 100 is indicative of the strength of the
expansion or contraction.
About The U.S. Chamber of Commerce
The
U.S. Chamber of Commerce is the world's largest business
organization representing companies of all sizes across every
sector of the economy. Members range from the small businesses and
local chambers of commerce that line the Main Streets of America to
leading industry associations and large corporations.
They all share one thing: They count on the U.S. Chamber
to be their voice in Washington,
across the country, and around the world. For more than 100 years,
we have advocated for pro-business policies that help businesses
create jobs and grow our economy.
About RSM US LLP
RSM is the leading provider of
professional services to the middle market. The clients we serve
are the engine of global commerce and economic growth, and we are
focused on developing leading professionals and services to meet
their evolving needs in today's ever-changing business landscape.
Our purpose is to instill confidence in a world of change,
empowering our clients and people to realize their full
potential.
RSM US LLP is the U.S. member of RSM International, a global
network of independent assurance, tax and consulting firms with
64,000 people in 120 countries. For more information,
visit rsmus.com, like us on Facebook, follow us
on X and/or connect with us on LinkedIn.
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SOURCE RSM US LLP