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Positive Results and Caution Seen in Important Middle Market Economic Sector
What are American citizens most concerned about? As a Gallup poll taken in February of this year reported: “Economic issues again lead Gallup’s measure of what Americans see as the most important problem facing the nation.”
The Gallup survey results provide an interesting backdrop to a survey conducted in the spring of 2014 by Dr. Patrick Callaghan, an Associate Professor at Northwood University and Michael Boudreau, a Managing Director of O’Keefe. According to Boudreau the intention of the survey was to determine the “pulse” of the middle market economy primarily in Michigan and the Mid-West. This survey is important since this market segment is critical in driving the overall U.S. economy.
Approximately 80% of respondents to the O’Keefe survey on the state of the middle market economy said their clients either met or surpassed their targeted 2013 revenue projections. This is a very good sign for a market that has been less than optimistic regarding the economy according to last year’s O’Keefe survey results. The reason for this success was credited to winning business from current customers (48%), new customers (27%), new products and services (14%) and acquisitions (11%).
Dr. Callaghan speculated that, “companies may be building better relationships with their existing customers and or riding a wave of new business because their final product or service is filling a void resulting from years of conservative spending and or pent up demand.” Boudreau opined further that middle market entities might be exposed to less competition as a result of firms going out of business during the recent economic downturn.
Not surprisingly, the survey clearly indicated the two biggest factors that could negatively impact 2014 profits are the economy and related healthcare costs. The survey asked respondents how they planned to address the pending increases in healthcare costs and the answers that received the highest percentage of responses included; increasing employee premiums (52%); reducing employee’s hours to less than 30 per week (25%); and eliminating spousal healthcare coverage (19%).
In a June 2014 report published by the National Center for the Middle Market, the importance of this segment to the overall US economy is emphasized: “The U.S. middle market continues to lead growth for the U.S. economy.” For the first quarter of 2014, 60% of middle market firms reported improved overall company performance versus one year ago. The proportion of companies reporting improved performance has remained fairly stable over the past 12 months. Middle market companies reported a year-over-year increase in revenue growth of 6.5%, outpacing the revenue growth for the S&P 500 as sales grew by 0.5% over the same period.