RSM US LLP (“RSM”) – the nation’s leading provider of audit, tax and consulting services focused on the middle market – recently announced results of the March 2021 reading for its RSM US Middle Market Business Index (MMBI). Typically a quarterly index, the firm is releasing monthly installments of the MMBI for the duration of the COVID-19 pandemic. For March’s reading, the MMBI composite score increased to 127.4 from 122.4 in February, revealing growing confidence in the economy among middle market leaders.  

“The middle market is the heart and soul of American business, and as the middle market goes, so goes the U.S. economy,” said RSM Chief Economist Joe Brusuelas. “Based on the March results, policymakers, investors and chief executive officers should prepare for a coming economic boom as the real economy recovers and enters expansion this year. It’s our position that this will likely unleash the strongest period of American growth since the late 1980s, and, quite possibly, the post-World War II period. Beneath the top-line data, we can infer that growing confidence in economic prospects linked to rising vaccinations and the fiscal floor put underneath the economy over the past year has bolstered middle market business confidence and is shaping expectations of changing behavior in the short term that will boost economic activity. How middle market firms manage the early phase of recovery will, in part, be characterized by constrained global supply chains and higher prices in the near term.” 

The March MMBI data revealed that 55% of respondents indicate that over the next six months they expect to increase productivity-enhancing capital expenditures. This is the best reading in the capital spending sub-index since just after the passage of the 2017 Tax Cuts and Jobs Act and reflective of what is expected to be a hyper-competitive post-pandemic economy. While only 35% of middle market firms surveyed are deploying more capital right now, as the economy begins to reopen, the emergence of pent-up demand by businesses to invest in their own futures, along with higher household spending, will provide the foundation of the better-than-7% pace of growth that underscores the RSM US economic forecast this year. In addition to planned accelerations in investments, plans to hire also saw record highs, with 59% of respondents saying they will increase hiring over next six months.

Along with robust growth will come some pricing pressures as the economy opens amid constrained global supply chains that were damaged during the worst of the pandemic. The MMBI prices paid sub-index currently implies that prices are increasing and are expected to continue to do so in the near term. Roughly 66% of survey participants said they are paying higher prices for goods used at earlier stages of production and for intermediate goods necessary to produce finished goods, while 76% of those expect to do so six months from now. Whether these trends result in higher prices charged to middle market clients and consumers will depend on the ability and willingness of middle market firms to pass along higher prices paid. MMBI data implies that despite higher prices paid, only 43% of businesses are charging higher prices to customers, despite the increases in prices received. While 67% indicate they expect rising prices received in the near term, it’s unclear if those increases will materialize.

RSM will continue to publish monthly installments of the MMBI for the extent of the COVID-19 pandemic. To stay informed with the latest insights, ideas and countermeasures to minimize the outbreak’s negative effects as well as prepare for future emergency events, visit RSM’s COVID-19 Resource Center.

The March 2021 MMBI data was collected between March 8 and March 19, 2021.

About the RSM US Middle Market Business Index
RSM US LLP and the U.S. Chamber of Commerce have partnered to present the RSM US Middle Market Business Index (MMBI). It is based on research of middle market firms conducted by Harris Poll, which began in the first quarter of 2015. The survey is conducted four times a year, in the first month of each quarter: January, April, July and October. The survey panel consists of 700 middle market executives and is designed to accurately reflect conditions in the middle market.

Built in collaboration with Moody’s Analytics, the MMBI is borne out of the subset of questions in the survey that ask respondents to report the change in a variety of indicators. Respondents are asked a total of 20 questions patterned after those in other qualitative business surveys, such as those from the Institute of Supply Management and National Federation of Independent Businesses.

The 20 questions relate to changes in various measures of their business, such as revenues, profits, capital expenditures, hiring, employee compensation, prices paid, prices received and inventories. There are also questions that pertain to the economy and outlook, as well as to credit availability and borrowing. For 10 of the questions, respondents are asked to report the change from the previous quarter; for the other 10 they are asked to state the likely direction of these same indicators six months ahead.

The responses to each question are reported as diffusion indexes. The MMBI is a composite index computed as an equal weighted sum of the diffusion indexes for 10 survey questions plus 100 to keep the MMBI from becoming negative. A reading above 100 for the MMBI indicates that the middle market is generally expanding; below 100 indicates that it is generally contracting. The distance from 100 is indicative of the strength of the expansion or contraction.