Middle Market Business Update

Middle-market companies represent significant growth opportunities for the global economy. It is a rapidly growing, dynamic, and resilient part of the economy, defined by businesses with between 50 and 250 employees. The middle market is responsible for more than 20% of commercial spending worldwide.

In the United States, the middle market is a serious driver of the U.S. economy. Approximately 200,000 middle-market businesses in the U.S. employ around 48 million people, representing a third of the private sector GDP. These companies outperformed through the financial crisis of 2007–2010 by adding 2.2 million jobs across significant sectors and regions, proving their vitality to the economy's health. Businesses in this category are geographically diverse, privately and publicly owned, and include family-owned companies and sole proprietorships.

U.S. Middle-Market Growth Continues to Exceed Forecasts

The U.S. middle market has a history of leaders that forecast moderate revenue rates and moderate employment growth. Except for the rare year of 2020, when the COVID-19 pandemic turned the world upside down, these middle-market companies consistently outperform their expectations, usually significantly. The middle market sets new record growth and performance levels in almost every reporting period.

According to the National Center for the Middle Market, since Q4 2021, middle-market businesses have maintained average year-over-year revenue growth of 12.3% and average year-over-year employment growth of 10.5%. These percentages are both well above pre-pandemic levels.

Middle-market companies are expected to meet or exceed their projections of 8.8% revenue growth and 9.5% employment growth over the next year. This is as crucial performance indicators increase, including economic confidence and a strong level of interest in reinvesting in different areas of the businesses.

The middle market remains strong even as businesses face ongoing talent shortages, operational issues, inflation, economic uncertainties, and climate change risks. The key to ongoing success will be mitigating new risks and keeping growth trajectories on track.

The sectors represented in the middle market include the following breakouts:

• Retail: 20%
• Finance, Insurance, Real Estate: 16%
• Manufacturing: 11%
• Transportation: 8%
• Healthcare: 8%
• Construction: 7%
• Technology: 6%
• All Others: 24% (Includes Mining, Utilities, Agriculture, Transportation and Communications)

This data is based on 1,000 firms polled in the most recent Middle Market Indicator report by the National Center for the Middle Market. Sectors are based on industry codes from the U.S. Census Bureau.

With respect to revenue, four out of five middle-market companies are growing at a record-high rate. Most businesses expect this growth to continue into 2025.

Find Out How We Can Help You Achieve Your Goals.

Regarding employment, year-over-year growth has returned to double-digit levels following a modest decline in the past two reporting periods. Approximately three out of five businesses continue to expand their workforces.

Additionally, the appetite for capital investment is increasing, almost back to pre-pandemic levels. The critical areas for investment include technology, people, and capital expenditures.

According to recent data from Umpqua Bank’s annual Business Barometer (a subsidiary of Columbia Banking System, Inc.), middle-market optimism and key growth indicators have risen to six-year highs while small businesses proceed more cautiously.

Nearly seven of ten middle-market companies have a favorable view of the current economy, surpassing a majority for the first time. Over the next year, more businesses than ever (70%) expect demand for products and services to increase. They also hope to see greater profitability (60%). These businesses also report that they are more likely than ever to invest in digitization (88%), expansion plans (65%), real estate (60%), and staffing (54%). More than half (52%) would consider acquiring another business, and 43% would consider a merger.

According to the Barometer, more middle-market companies are embracing generative artificial intelligence (AI). 42% report moving forward quickly to implement the technology across their organization, and 36% for at least a few specific tasks or functions. Adding staff with generative AI experience is also becoming a higher priority, with 86% likely to hire for the skillset over the next year. Investment in AI is also a key strategy at 56%. A majority of middle-market business leaders believe that AI is having a significant impact on profitability (70%) or will have in the next 12 months, as well as acceleration of new products (69%), productivity (72%), and competitive advantage (71%).

Another critical insight is that most middle-market businesses return manufacturing and supply chains to U.S. soil. Most of these companies continue looking for new routes and partners. In the past year, more than half (51%) have moved manufacturing or supply chains back to the U.S., and 73% that have overseas operations are likely to shift them elsewhere in the next year.

Schedule a Call