The continuing strength in the US middle market sector is the engine behind the strong job market and consumer spending. Data from the National Center for the Middle Market Year-End 2022 Report supports our claim that this growth is indeed stalling the Fed’s efforts to drive the economy into recession. In fact, middle market businesses are reporting more than 12% increase in revenues for 2022 over 2021. No doubt that much of this is inflation pass-through to customers. Almost 72%  of companies report growth versus only 6% showing decline.

Larger middle market companies ($100 MM-$1 B in revenue) reported growth of 13.2% while smaller companies reported 11.6 % growth. This growth has led to an 11% increase in new employee hires with 57% of all companies reporting workforce expansion. The largest demand for people currently resides in healthcare and manufacturing, but manufacturing is beginning to slow, with falling factory utilization rates.

So far in 2023, middle market companies still believe they will see significant growth this year with 58% of companies expecting increased revenues and workforce growth. Because the labor market is currently so tight, 33% of companies are looking for ways to automate processes.

So, what is the most pressing issue businesses are now facing? Most are concerned about continuing high inflation damage and the Fed driving the economy into recession to combat inflation. Approximately 40% of middle market businesses report a negative impact of inflation in the last 6 months. Comparing 2021 to 2022, 61% of companies have increased wages by 6% which they believe is not sustainable. About 40% of companies are now delaying capital investment for fear of a coming recession.

Below, you’ll see how middle market leaders view 2023 challenges to their businesses and how they will focus their efforts. Interestingly, their rating of the extent to which external factors will impact their businesses is a little out of line with the level focus they plan to apply to deal with them.

External Challenges Impact to Business                         Internal Focus to Deal with Challenges

  1. Core business issues 32%                                               Core business issues 51%
  2. Economy 22%                                                                         Talent management 48%
  3. Talent 11%                                                                                Costs 16%
  4. Costs 9%                                                                                    Economy 14%

The “core business issues” above includes maintaining revenue growth, customer retention, and technology changes. These rankings show that getting and retaining employees is key to growth with possible recession impact outside their control. This is interesting data to consider as we move into the second quarter of 2023.

C Squared Solutions provides interim or fractional CFOs, COOs, and CEO advisors in nearly all industries. We analyze and advise on these issues frequently through sophisticated modeling and experienced management. Give us a call or visit our website for more information and details. We have been there and done that!

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