Middle market optimism tempered by political doubts

Middle market executives have a positive outlook for their businesses over the next year, although this optimism is tempered by concerns over continued economic uncertainty, regulatory costs and tax increases, according to research by CIT Group.

CIT’s third annual Voice of the Middle Market study found that nearly two-thirds (63%) of respondents believe their companies are better off today than last year, while 62% expect the size of their workforce to increase in the coming year.

Executives continue to express significant optimism when it comes to the strength of their local economy with half (51%) describing it as strong. Over half (58%) expect to enter other regions within the US over the next 12 months, while 62% expect to increase their range of products and services in the next 12 months.

CIT’s research suggests that the improving economic outlook has had an impact on financing, with 90% of this year’s respondents stating they are satisfied with their company’s access to financing, up almost 10 points from 2013. Almost all (94%) report being satisfied with their current financial lender, and more than four out of five say they are satisfied with the variety of financing alternatives available to them and the cost of financing.

However, the research identified several issues as likely to have an impact on confidence for the future, led by worries about continued economic uncertainty (76%); the costs associated with complying with the Affordable Care Act (ACA) (75%); regulations (71%) and tax increases (70%).

“Middle market companies represent the backbone of the American economy, leading innovation and growth that has been vital to the recovery of the US economy,” said Tom Hobbis, co-head of CIT Sponsor Finance. “Our study has found that while middle market executives are upbeat about their own prospects and are looking to grow as a result, they believe it’s important that elected officials bring forth policies that support the middle market.”

Most respondents believe Congress is doing too little to support both small (86%) and middle market (77%) businesses. The majority (84%) want to see action on tax reform and around three quarters want changes to healthcare reform, investments in infrastructure, and increasing domestic energy production.

Separately, a survey from the National Center for the Middle Market, in partnership with GE Capital and The Ohio State University Fisher College of Business, has found that the third quarter of 2014 marked the third consecutive quarter of solid revenue growth for US middle market firms.

The majority of middle market firms continue to report year-over-year increases in revenue growth with a mean total revenue growth of 7.5% this quarter – the highest percentage of growth reported since the beginning of the survey in 2012. While growth is evident across a broad range of industries, it is not evenly distributed across all middle market revenue segments.

Growth in smaller middle market firms is accelerating and larger middle market firms are experiencing stable growth. However, growth among core middle market firms is slowing, and they are also more cautious about growth in the coming year than larger and smaller middle market firms.

While confidence among middle market leaders in the global economy is decreasing, most middle market executives remain confident in the national and local economies. In addition, capital investment plans remain stable in Q3 as compared to the two prior quarters in 2014.