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For Manufacturing, the Middle is the Sweet Spot

Sept. 1, 2017
Mid-market manufacturing firms in a survey last month reported revenue growth of 7.1% on average, compared to 6.7% for manufacturers as a whole.

"To say the middle market is doing really well is to say something that has been true consistently over the five and a half years that we have been tracking mid-size companies," notes Tom Stewart, executive director of the National Center for the Middle Market. In its most recent Middle Market Indicator survey, companies averaged revenue growth of 6.7% and were brimming with confidence.

With the exception of just one quarter, Stewart says, middle market firms have grown "substantially faster" than small or big business and also hired "substantially faster" than the other two business segments.

Manufacturing is a case in point. In NCMM's second quarter economic survey, it found that mid-market manufacturing firms reported revenue growth of 7.1% on average, compared to 6.7% for manufacturers as a whole. And they expect revenue to grow 6.4% in the coming year, compared to 5.3% for the entire manufacturing community.

NCCM defines the middle market as companies with $10 million to $1 billion in annual revenue. Manufacturing has 22,200 companies in the sector employing 29.9% of the manufacturing workforce. These companies generate $1.1 trillion in revenue annually, just over 15% of all manufacturing revenue.

Stewart says the middle market occupies a "sweet spot" where these firms are more resilient than small businesses and more focused on growth than large companies where managing costs may be a dominant concern.

"They are just rocking along," says Stewart. "It really has been remarkable."

One area where mid-market manufacturers are trailing their peers is in employment. Employers in middle market manufacturing firms increased their headcounts by 4.5% over the past year, compared to 5.7% for all middle market employers. They predict that trend will continue, with mid-market manufacturers expecting to grow their workforce by 3.4% over the coming year compared to 4.7% for all mid-market firms.

Stewart noted a couple of reasons for the employment lag. First, manufacturing is very susceptible to the substitution of capital (machinery) for labor. Second, he points out, "We have a general sense that the manufacturing that is thriving the most in the U.S. tends to be relatively highly capitalized, advanced and automated. Industries that are reshoring are where production comes back but not the jobs."

Still, Stewart says, 53% of mid-market manufacturers added jobs in the past year while only 8% decreased employment. He adds, "Job growth at 4.5% is pretty darn good."

Just as with their small and large peers, mid-market manufacturers are reporting that finding employees is a concern. Some 64% said finding staff is their top internal challenge. Manufacturers said their biggest needs were for professional and technical staff, followed by sales and then production workers.

Further investment in machinery and other capital spending is definitely on the minds of mid-market manufacturers. Some 80% said they were ready to invest. Stewart said the one caveat to that finding is that there remains considerable uncertainty about tax rates, the debt ceiling and other issues on the plates of Washington leaders. Manufacturers see projects they want to invest in, Stewart said, but these policy concerns "might cause them to sit on their cash."

Even so, Stewart says, middle-market leaders are pleased with the direction of the economy and confident about the future. "This is the longest sustained bull market for jobs and the second longest expansion in U.S. economic history. It has been slow but unrelenting."