Middle Market Business Index drops as companies lose optimism

RSM US’ Middle Market Business Index (MMBI) dropped to 100.7 in July after reaching 109.1 in June, reflecting business leaders’ sentiment that the economic fallout of the pandemic will not be a short-term affair.

The consulting firm’s monthly MMBI survey polls middle market companies (annual revenues $10 million to $1 billion) on business measures such as revenues, profits, capital expenditures, and hiring, as well as their views on the economy.

The index drop aligns with discouraging recent reports on economic performance and employment. The US economy contracted by 32.9% in the second quarter, its worst drop on record – plunging the country into its first recession in 11 years. New unemployment claims, meanwhile, climbed above 1 million last week after two weeks of declines. Of the 22 million jobs that were lost in March and April, only 9.3 million have been regained, and the unemployment rate remains at a sizeable 10.2%.

The middle market remains in a recession alongside the wider economy, according to the report. Only 29% of respondents said they saw improved gross revenues and 54% don’t expect an improvement in the next six months.

RSM US Middle Market Business Index

“When we began to see shutdowns in late March/early April, business and policy leaders assumed it would be a short disruption, and policy expectations were formed around that,” said Joe Brusuelas, RSM US chief economist. “We now know the pandemic will not be a 15-week affair, and firm leaders are hunkering down for what’s to be an extended adjustment.”

Most economists admit that any recovery will be a weak one until the virus is under control. The RSM report echoes this – noting that a “swoosh-like” recovery is dependent on the progress toward the production and distribution of a vaccine to end the pandemic. 

With the pandemic continuing to surge in numerous regions in the US, the economic outlook appears bleak. Only 42% of businesses expect to see an improvement in the economy over the next six months, down from 56% in June. Hiring has also decreased in the middle market, with only 23% reporting an increase in hiring compared to 26% in June. Only 35% of businesses plan to increase hiring in the next six months.

“While economic activity rebounded in May and June, that growth is now being suppressed by a surge of coronavirus cases that have undermined economic activity, consumer confidence, and business recovery,” said Neil Bradley, chief policy officer of the US Chamber of Commerce, which partnered with RSM on the report.

Bradley notes that in order to reopen confidently, businesses will need consistent public health guidance, financial assistance, and liability protection if they follow the appropriate public health guidelines.

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