RSM US Middle Market Business Index eases as pricing and supply chain challenges continue
CHICAGO (March 10, 2022) – The RSM US Middle Market Business Index (MMBI), presented by RSM US LLP (“RSM”) in partnership with the US Chamber of Commerce, rose to 125.1 in the first quarter of this year, from 130 in the quarter previous as the omicron Price swing and rise weighed on overall economic activity as well as consumer and business confidence. The maximum impact of omicron was captured in this quarter’s index.
“Despite the decline in general sentiment, the current reading reflects solid trading conditions in the middle market and is perhaps the first sign of relief inside the index on the risk to the outlook posed by inflation” , said Joe Brusuelas, RSM US LLP. chief economist. “However, Russia’s invasion of Ukraine, which occurred after the first quarter sampling period of the year, will likely disrupt global supply chains and drive up the price of short-term energy. It is likely that this development and all that will follow could weigh on the morale of mid-market companies during the second quarter of the year.
Optimistic Outlook Continues, Despite Current Omicron and Inflation Impacts
Mid-market executives’ views on the economy have deteriorated in the current quarter, with around 29% of survey respondents saying the economy has improved, 41% saying it has gotten worse. deteriorated and 33% noting that it was unchanged. Looking ahead, 43% of respondents said they expect the economy to improve and 29% expect it to deteriorate over the next six months.
Similarly, 43% of respondents reported improvement in gross revenue and 40% noted improvement in net profit for the current quarter. When asked to forecast the next six months, 61% said they expect gross revenue to improve and 59% expect net profit growth. This decidedly optimistic outlook is accentuated by the fact that prices received and compensations have eased in the current quarter, which has provided relief to companies facing shortages of goods and labour.
While some indicators point to improving trading conditions, mid-market pricing power remains challenging given the hypercompetitive landscape of the real economy; on average, 54.5% of companies said they had passed on price increases over the past year. Seventy-one percent of businesses said they would pay higher prices for goods in the current quarter, and 67% expect to do so in the next six months. Additionally, about 53% of survey respondents said they passed on these higher prices in the current quarter and 69% said they would try to do so in the next 180 days.
Businesses expect to increase capital spending, hiring and wages
Similar to views on the overall economy, revenue and margin sentiment declined on capital spending in the current quarter. Only 27% of respondents indicated an increase in capital spending, although 51% said they expected it to increase in the future.
For the current quarter, only 38% of companies said they had increased hiring and 48% of companies said they had increased compensation. With more than half of companies planning to increase spending on productivity-enhancing equipment, 56% of companies say they will increase hiring and 62% will raise wages to attract workers to increase production. In the labor-intensive service industries that make up the bulk of the middle market, wages play an outsized role in business costs.
Businesses continued to carefully manage inventory levels given the latest round of economic shocks from supply chain challenges and worker absenteeism that have characterized the past two months. More than a third of businesses (36%) reported an increase in inventory and 51% said they expected an increase over the next two quarters.
Cyber breaches remain a major concern in the middle market
Responses to special questions from the latest MMBI survey show that cybersecurity attacks and potential vulnerabilities remain a top concern among middle market executives. While 22% of companies reported that their company had experienced a data breach in the past year, 72% of respondents said they believed unauthorized users would deliberately and illegally attempt to access their data. data or to their systems this year.
Twenty-three percent of middle-market executives said they had experienced a ransomware attack in 2021, although 62% said they feared their company would be exposed to a ransomware attack next year.
Scheduled to be released in June, the RSM US Middle Market Business Index Cybersecurity Special Report will detail cybersecurity trends that have emerged over seven years of MMBI data.
The survey data that informs this reading of the index was collected between January 10 and January 31, 2022.
About the RSM US Middle Market Business Index
Built in collaboration with Moody’s Analytics, the MMBI is derived from the survey’s subset of questions that ask respondents to report the progress of a variety of indicators. Respondents are asked to answer a total of 20 questions modeled after other qualitative business surveys, such as those from the Institute of Supply Management and the National Federation of Independent Businesses.
The 20 questions ask about changes in various metrics of their business, such as revenue, profit, capital expenditures, hiring, employee compensation, prices paid, prices received, and inventory. There are also questions that relate to the economy and outlook, as well as the availability of credit and borrowing. For 10 of the questions, respondents are asked to indicate the change from the previous quarter; for the 10 others, they are asked to indicate the probable direction of these same indicators in the next six months.
Responses to each question are reported as diffusion indices. The MMBI is a composite index calculated as an equal weighted sum of the diffusion indices for 10 survey questions plus 100 to prevent the MMBI from going negative. A reading above 100 for the MMBI indicates that the middle market is generally expanding; less than 100 indicates that it is generally contracting. The distance from 100 indicates the strength of expansion or contraction.
About the United States Chamber of Commerce
The United States Chamber of Commerce is the world’s largest business organization representing businesses of all sizes in all sectors of the economy. Members range from small businesses and local chambers of commerce that line America’s main streets to major industry associations and large corporations.
They all share one thing: they look to the United States House to be their voice in Washington, across the country, and around the world. For more than 100 years, we’ve advocated for business-friendly policies that help businesses create jobs and grow our economy.
About RSM US LLP
RSM’s goal is to deliver the power of being understood to our clients, colleagues and communities through world-class audit, tax and advisory services focused on middle market companies. The customers we serve are the engine of global trade and economic growth, and we are focused on developing world-class professionals and services to meet their ever-changing needs in the ever-changing business environment of today.
RSM US LLP is the US member of RSM International, a global network of independent audit, tax and advisory firms with 51,000 people in 123 countries. For more information, visit rsmus.com, like us on Facebook, follow us on Twitter and/or join us on LinkedIn.