The RSM US Middle Market Business Index climbed to 113.4 in the second quarter, hitting a current business cycle peak as executives ramp up hiring and investments.
The latest RSM US Middle Market Business Index shows business confidence reaching a cycle high of 113.4 in the second quarter, up from 107. Driven by tax cut tailwinds, rising equity valuations and a robust non-residential investment market fueled by AI spending, middle market firms are expanding headcounts and raising compensation. However, persistent price pressures and geopolitical tensions remain potential headwinds.
Why it matters: The index reading, a high for the current business cycle, suggests that executives in this key economic sector are bullish on the economy's direction, signaling continued investment and hiring that could serve as a bellwether for broader economic trends.
By the numbers: The optimism is reflected across several key metrics from the survey of 500 executives:
Revenues & Earnings:
59% of firms reported higher revenues and 58% saw increased net earnings. Looking ahead, 66% expect revenues to improve and 65% anticipate higher earnings over the next six months.
- Capital Spending: 57% increased capital expenditures in Q2, and 65% plan to boost spending further in the coming months.
- Hiring: 53% of companies increased hiring, up from 45% in the previous quarter. 58% expect to continue adding staff.
- Compensation: 62% of executives reported raising employee pay, with 65% planning to increase compensation to attract new talent.
The big picture: The surge in confidence is being driven by several factors, including the tailwind from recent tax cuts and rising equity valuations. The report also points to a strong non-residential investment market, particularly $1.6 trillion in AI-related capital expenditures, as a major force lifting the economy and offsetting weakness in other areas like housing.
Zoom in: While optimism is high, inflationary pressures persist. 78% of respondents reported paying higher prices in the second quarter, an increase from 71% in Q1.
- However, fewer executives (69%) expect those price hikes to continue, suggesting a belief that current inflation may be temporary.
- At the same time, the tight labor market is pushing up wages, with 65% of firms expecting to increase pay to attract new hires.
What to watch: The primary risk to this positive outlook is inflation. The RSM report notes that if supply shocks stemming from the conflict in the Middle East continue, they could pose a significant challenge to the current economic expansion.
See the full RSM US Middle Market Business Index report here:
SOURCE: RSM
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