The RSM US Middle Market Business Index (MMBI), presented by RSM US LLP ("RSM") in partnership with the U.S. Chamber of Commerce, eased slightly to 130.8 in the first quarter from 132.3 at the close of last year on a seasonally adjusted basis. The MMBI survey results reflect a self-sustaining economy and robust labor market supported by middle market firms that continue to reinvest earnings into productivity-enhancing expenditures.

"The primary takeaway from this quarter's survey is that middle market executives are bullish on the year even as economic growth moderates from the blistering 3.1% pace of last year," said Joe Brusuelas, chief economist with RSM US LLP. "It is not surprising that a three-year period of solid investment in firms' ability to produce has resulted in an average increase of 3.9% in American productivity over the past three quarters. While such robust gains in productivity are unsustainable, anything at or above 2.5% bodes well for an economy that can grow at a faster pace, retain a low unemployment rate and obtain price stability, all while bolstering living standards for all."

Middle Market Firms Optimistic About Future Economic Conditions, Revenues and Net Earnings
MMBI survey results from the first quarter reflect the economy's resilience, with 45% of middle market executives noting an improvement in current economic conditions. Forty-six percent of respondents also said their gross revenues and net earnings improved in the first quarter and 48% said they accelerated their investments in capital expenditures.

A sense of optimism is inferred from respondents when asked about their expectations over the next six months. Sixty-two percent of executives said they anticipate an improvement in economic conditions and 67% said they expect an improvement in both net earnings and revenues over the next half year.

"Middle market businesses' continued optimism reflects the U.S. economy's ongoing strength," said Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce. "It's encouraging that businesses in the middle market remain positive about the economic outlook and their own revenue growth despite the fact that rising regulatory burdens and workforce challenges are creating headwinds and constraining growth."

Further underscoring the buoyant outlook among middle market executives, 59% indicated they intend to bolster productivity-enhancing capital expenditures. Notably, for 14 straight quarters, most survey respondents have said they plan to increase outlays on software, equipment and intellectual property that make up cumulative capital expenditures.

Pricing Concerns Remain, though Demand is Strong and Competitive Labor Market Persists 
Pricing continues to be a top concern in the middle market. Seventy-three percent of executives said they paid higher prices for goods and services, while 68% expect to do so going forward. Nearly half (48%) said they passed along those higher prices and 58% indicated they intend to do so over the next six months.

Although inflation is slowing, RSM anticipates middle market firms will retain some measure of pricing power given the strong level of aggregate demand, which underscores the fact that 45% of executives said they increased inventories this quarter. In addition, 58% said they intend to increase inventories over the next six months, reflecting robust expectations around gross revenues and net earnings.

One sign that may indicate that robust business conditions and rising revenues have provided a much-needed respite from the pricing pressures of the past three years is a decline in planned borrowing. Only 19% of senior managers from the middle market companies indicated their access to credit was easier and 43% of these managers said they plan to borrow more capital going forward – both figures eased from last year.

Hiring and compensation remained rock solid in the first quarter, with 44% of executives noting they had increased hiring and 58% saying they intend to do so over the next six months. In addition, 54% of executives said they increased compensation to obtain workers and 65% said they expect to do so this year. With the U.S. economy at what RSM considers to be full employment, wage competition for midcareer, value-adding employees will remain challenging.

The survey data that informs this index reading was gathered from 403 respondents between Jan. 8 and Feb. 16, 2024.