B O R R O W E R S SEP/OCT 2017
MIDDLE MARKE T
IN Q2/17, growth in the middle market cooled slightly, according to the Middle Market
Indicator from the National Center for the Middle Market. That had more to do with
an impressive Q1/17 than it did with any shortcomings in the second quarter. During
the past 12 months, there was 6.7% revenue growth in the middle market, which fell
from the incredible mark of 9.2% reported in Q1/17. However, the slowed growth in
year-over-year revenue had less of an impact on retail trade. Meanwhile, 72% of firms
reported revenue increases in Q2/17, which remained in line with the same quarter a
year ago. More than half of middle market companies reported they were doing better
than the competition (55%) and attracting new customers effectively (51%). Expectations for the next 12 months were more
modest when compared to the Q2/17 data, with 5.3% growth in revenue projected over the time period, which is slightly
better than the same outlook given in Q2/16 ( 4.8%).
There was a less startling decline in the growth in employment for middle market companies in the report, which was done in
collaboration with the Ohio State University Fisher College of Business, Sun Trust, Grant Thornton and Cisco. Over the past 12 months,
there was 5.7% growth in employment, compared to the 7.5% reported in the Q1/17 release. In the next 12 months, nearly half of
middle market companies (42%) expect to hire new employees while a 4.7% growth in employment is expected over the next year.
Butting up against that notion was the fact that roughly half of middle market companies were worried about finding the right talent. n
SINCE THE BEGINNING OF Q2/17, the U.S. economy has warmed along
with the temperature, according to the most recent release of the
Economic and Interest Rate Outlook from Northern Trust. In the
outlook, Northern Trust noted that gross domestic product has
grown at a 2.6% rate in Q2/17, which is more than twice the rate
recorded in Q1/17. Northern Trust forecast growth rates above 2.0% in the third and fourth quarters as well, specifically calling
for 2.5% growth in Q3/17 and 2.3% growth in Q4/17.
In Q2/17, personal consumption rose by 2.8% on an annualized basis, which was a stark contrast to the “sluggish pace”
set in the spring. Some of the increase can be attributed to activity in equity markets, which was “exceptionally strong.” The
improvement in employment also played a part in providing increased consumer spending, with Northern Trust noting payroll
expansion of 209,000 in July.
That is the fifth time this year that there have been more than 200,000 jobs added to the workforce. Running parallel to
the job creation was what Northern Trust characterized as “modest” wage gains, with hourly earnings up 2.5% in the last 12
months. This compares to a regular 3% increase in wage gains during more recent upturns. Going forward, Northern Trust
anticipates flat job growth, with the civilian unemployment rate falling in at about 4.3% in Q3/17 and Q4/17 after it landed at
4.4% in Q2/17.
Home sales generally fell in June while home construction continued to be handled cautiously. Northern Trust pointed out
that a smaller pool of new homes for sale, mixed with low mortgage rates and easing lending standards could contribute to
“upside potential” for the sector during the rest of the year.
Inventories have not gone in the same direction as spending, with rebuilding a likely event in the future. There was a mainly
flat rate of growth in inventories in Q1/17, which was followed by an actual reduction of collection stocks in Q2/17. Inflation
has also remained flat and didn’t make much of a move in July, with the consumer price index’s change falling to 1.6%.
Northern Trust also took a look at the Federal Reserve’s action regarding the federal funds rate, which it did not increase in
July. According to Northern Trust, there is a 40% chance that interest rates will be elevated again before the end of the year. n