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Middle Market Indicator: Midmarket companies hitting a wall

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Middle Market Indicator: Midmarket companies hitting a wall

Despite year-on-year gains, middle market companies appear to be hitting a plateau – mainly due to government policies at home and abroad.

A recently-released survey conducted by The National Center for the Middle Market indicates that growth and employment in US middle market companies is slowing, suggesting danger for the faltering economic recovery.

Prospects for future growth – while up significantly from a year ago – have moderated over the past three months as middle market executives face strong headwinds both at home and abroad.

While U.S. middle market companies extended their string of solid revenue and employment gains during the third quarter of 2013 and anticipate those trends will continue over the next 12 months, the pace of these gains appears to be slowing significantly.

According to the report, nearly two out of three middle market companies reported improved company performance in the third quarter. Overall revenue increased 5.5% in the third quarter, which matches gains in the third-quarter of 2012 but marks the slowest rate of increase over the past four quarters. Employment also grew with four in ten companies expanding their workforce. Employment at middle market companies increased 2.8% in the quarter, a marginally higher pace than that of the past four quarters.

Prospects for future growth – while up significantly from a year ago – have moderated over the past three months as middle market executives face strong headwinds both at home and abroad. Concerns about impending health care and other regulation on the domestic front, destabilization in the Middle East, and economic turbulence in former fast-growing markets (India, Brazil and Turkey, among them) are giving middle market

leaders pause, and could lead to more restrained hiring and spending.

Middle market companies anticipate that revenue will grow 4.4% over the next year, a sharp drop from the 5.1% estimated growth in the prior quarter. That would represent the first time in more than a year that top-line growth would dip below 5% for the segment.

The recent results and tempered growth outlook still outpaces by nearly two-fold the performance of the broader market – underscoring the middle market’s critical role as an economic driver. Analysts anticipate a 2.6% increase for the S&P 500 Stock Index in the third-quarter (down from 3.0% estimated at the end of the second quarter). And analysts expect revenue gains for the S&P 500 during the fourth quarter to be a scant 1.0%

The entire report can be viewed here.

 

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