CIT Voice of the Middle Market surveyed 517 mid-market executives in the summer of 2016 and found that, while many have an optimistic view of their business and anticipate growth in the coming year, they also have concerns about things like the economy, data security, taxes and healthcare.
Here are 4 broad trends that are top of mind for mid-market executives as we head into 2017.
1. The federal government. Although U.S. firms of all sizes could see profound changes in tax policy and regulations in 2017, CEOs are generally optimistic about a Trump presidency. Doug Oberhelman, for instance, CEO of Caterpillar (retiring at year-end) and chair of the Business Roundtable, said that while he is “worried about some of the rhetoric…it’s all about job creation.” He especially welcomed Trump’s plans to cut corporate taxes and roll back regulation.
“The No. 1 concern CEOs have—almost half [of them]—are regulatory costs,” Oberhelman said recently. “We’re not against regulation. Not at all. But we’re for a smart, more effective approach.”
Yet not all executives agree, and some are especially concerned about Trump’s trade proposals. FedEx CEO Fred Smith said in mid-December that Trump should “be careful” in managing the relationship with China and that getting rid of NAFTA would be “catastrophic for the U.S. economy.”
Of those executives surveyed by CIT, 63% support the TPP and more than four in 10 believe that the Dodd-Frank Act has either made it easier or had no impact on their ability to get capital loans. Nearly 80% or more said they wanted Congress to take action on terrorism, tax reform, reduced federal spending or changes to healthcare reform.
2. The economy. Mid-market executives generally feel good about the state of the economy. The CIT survey found that most executives based their perception less on government numbers and more on their own business experience, community, friends, family and colleagues. Nearly seven in 10 said their company was better off than it was a year ago. Regardless of who won the election, the U.S. economy was already on course for a pickup in economic growth. Rising wages, falling unemployment, rising consumer prices and an improved housing market are all good signs.
While 2017 is expected to bring more of the same, the rate of growth could vary. Although the Fed is set to raise interest rates this week, even it has expressed concern about how Trump’s policies could take shape and what their effect could be on growth, employment and prices. Rising rates would be necessary to stave off inflation, but could slowly start to end the low-cost access to capital that mid-markets have enjoyed for so long.
“Things could turn out very differently, we understand, and we will simply watch what decisions are made and factor them into our thinking going forward,” said Federal Reserve Chairwoman Janet Yellen.
3. Company Growth. Many mid-market companies are forecasting strong growth in 2017. The CIT survey found that 33% to 40% of executives say it’s “very likely” their company will expand into new markets or regions in the coming year. Half also said they foresaw their company buying or acquiring another company. The National Center for the Middle Market reported that mid-market projections for future growth continue to rise and that expectations are at the highest levels since mid-2015.
Jeff Kilrea, Group Head and Managing Director of CIT Sponsor Finance, a division of CIT Group, said that mid-market executives expect to see “a lot of geographic expansion in 2017.” He noted that they’ll also be looking for ways to deploy capital in new technologies, digital strategies and product lines.
4. The Workforce. Mid-market companies in some sectors may face a tightening labor market with higher wages in 2017. Nearly 80% of executives across a broad spectrum of industries in the CIT survey said they expected their workforce to increase in the coming year. The reasons were increased business demand and opportunities followed by the need to innovate and stay ahead in their industry. As labor demands rise, so too may the wages mid-market companies have to pay to attract workers.
Finally, the potential for rising wages is pressuring companies of all sizes. The government recently reported that average hourly earnings grew by 2.5% year over year in May and are projected to rise further. This could put some pressure on profits at labor-intensive companies.