Optimism of Mid-Market Execs Fading

CUNA's Escan
January 25, 2012 | COMMENTS

In an April 2011 survey, mid-market company executives told Deloitte researchers they were cautiously optimistic about the economy. Since then, expectations have gone from modest to minimal.

The fading optimism is among the findings highlighted in “Mid-Market Perspectives: America's Economic Engine—Competing in Uncertain Times,” a new report based on Deloitte’s second mid-market company survey in July and August of last year.

Deloitte claims mid-market firms—typically companies with between 50 and 5,000 employees—are “the engine of the economy.” In terms of output, the sheer number of mid-market firms account for approximately 40% of the U.S. gross domestic product.

The survey results provide insights into what executives are thinking and doing to retain a productive edge for their companies. Deloitte reports four key findings:

1. Companies are prepared to work harder to achieve growth in a difficult economy.
2. New hires will be based on specific skills targeted at areas of strategic need.
3. Firms will employ business analytics and technology to find high-value customers.
4. Despite a massive number of unemployed Americans, many companies report they can’t find people with the right skills.

Not surprisingly, respondents became more pessimistic throughout the year. In April, executives estimated 2011 economic growth at 2.3%. By July, it had dropped to 2.1%, and by August it was down to 1.6%.

Despite declining expectations, executives continue to focus on improving their respective businesses. A full 70% said productivity had increased by an average of just over 6% at their companies since the onset of the recession. And 44% said their companies are prepared to increase the size of their workforce and to increase hiring over the next 12 months.

Key findings emerging from the research include:

Less low-hanging fruit. Easy growth in revenues and profits is gone, and future opportunities are unlikely to come from an expanding economy.

Caution on hiring. Executives at mid-market companies talk about hiring in the context of targeted hires to boost productivity. The single cost category they say they focus on controlling most is labor.

* Tech trumps talent. For now, improvements in business processes and new technology, rather than hiring, ranked higher for most mid-market companies.

The executives surveyed admit the future is difficult to read. About 64% said factors such as taxes, regulations, credit availability, and the economic outlook are “more uncertain” or “much more uncertain” than normal.

Nevertheless, the companies surveyed are keeping up with, or even increasing, the pace of capital spending. Three out of four companies surveyed are maintaining or boosting the level of long-term investments, despite higher levels of uncertainty.

Deloitte regards this as good news because long-term investment typically drives higher productivity, which—if accompanied by rising output—is associated with job growth. In an open and competitive world, productivity gains are crucial to U.S. job creation and prosperity. About 58% of respondents said that if they could increase productivity, they would engage in “strategic hiring in critical areas.”