The silver lining of the gloomy mid-market economic outlook

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As the U.S. economy faces one of the greatest uncertainties it has seen in years, middle-market companies are struggling to find optimism about the environment around them, research shows. recent.

Inflation and the threat of a recession are intensifying existing challenges such as persistent labor shortages and supply chain disruptions for businesses of all sizes. In the middle market, new data of JPMorgan Chase suggests a significant drop in optimism levels when business leaders look to the future of the economy.

Yet these disturbing findings don’t tell the whole story.

“Despite people’s concerns, which are related to what’s happening in the interest rate environment and what the Fed is doing and inflation, they’re still quite optimistic about their own situation,” says Jim Glassman, chief economist of JPMorgan Chase. at Mid-market growth.

Indeed, the data suggests that middle market business leaders are more optimistic than ever about their own operations. What is behind this seemingly contradictory dichotomy?

Mixed prospects

New data from JPMorgan Chase suggests a significant drop in optimism levels as business leaders look to the future of the economy. Yet these disturbing findings don’t tell the whole story.

JPMorgan’s 2022 Business Leaders Outlook Pulse report surveyed more than 1,500 mid-market business leaders between May 25 and June 10, 2022. Its findings were clear: 100% of respondents said they currently face business challenges. The majority pointed to the higher costs of doing business – including inflation – as well as labor as major challenges.

Middle-market optimism for the national economy is at its lowest level in 12 years, and down 75% from a year earlier, according to JPMorgan researchers. Pessimism, meanwhile, has soared, with 51% of middle-market executives expressing pessimism about the outlook for the national economy, up from just 10% last year.

Worse, only 9% of business leaders surveyed said they had an optimistic view of the global economy.

The data may seem shocking, but Glassman notes that growing concerns among middle-market business executives are unsurprising, given widespread talk of a possible recession.

“There are a lot of unknowns here, which worries business leaders – we’re not sure where this takes us,” he says. “We know there are a lot of bottleneck and inflation issues related to how we have recovered from the pandemic. And we just don’t know what that’s going to mean for interest rates.

The JPMorgan survey isn’t the only research to draw such conclusions. Another one recent report of Umpqua Bank drew similar conclusions, with the majority of small and medium-sized businesses surveyed citing challenges with inflation and rising cost of goods, as well as finding talent. The bank’s 2022 Business Barometer report, which spoke to more than 1,200 small and medium business executives in the United States, also found that 90% of small and medium businesses say inflation is a major concern, while 90% say they are affected by the “soaring” cost of goods.

In a statement, Umpqua Chairman Tory Nixon highlighted the “remarkable period of disruption” the companies have endured in recent years. “The pre-pandemic economic environment of low inflation, low cost capital and high growth has changed,” he adds.

Self-confidence

While both surveys highlight the immense concerns that middle market executives have about the national economy, both also find that these executives remain optimistic about their own future. JPMorgan found that more than 70% of them are optimistic about the company’s performance and 73% expect an increase in revenue over the coming year.

Related content: Mid-market optimism breaks continued volatility

On the one hand, says Glassman, it’s natural to be more optimistic about your own situation. Business leaders know their own businesses and their unique challenges intimately, with less understanding of what exactly is happening across the economy.

Yet the data also suggests that middle-market business leaders are savvy, seasoned professionals who have emerged from pandemic-related volatility better equipped to weather the storms brewing today.

“The kinds of things we’re struggling with right now – rising inflation, trying to find workers, trying to deal with supply chain bottlenecks – these are high-class issues by compared to what we dealt with two years ago,” says Glassman. “Two years ago, a lot of people didn’t really know if they were going to exist. It was an existential crisis.

Today, he continues, challenges like the tight labor market are more of an opportunity to strategize than a threat to a company’s existence. The pressure that pandemic disruptions have placed on middle-market businesses in 2020 has taught many executives to be flexible and versatile. Now business leaders must learn these lessons to manage economic uncertainty, and Glassman says they are rising to the challenge.

“I get this from clients all the time: ‘I know how to handle this. I can understand that. I wasn’t sure I could survive two years ago,” he says. “That’s a very strong statement I’ve heard from someone who runs all the catering business at the airport. And it’s probably the right idea. If you can figure it out, there’s lots of opportunities.

Upcoming negotiations?

I’ve always believed that small and medium-sized businesses have a lot more growth potential if they’re forced to automate, and that’s what crises tend to do.

Jim Glassman

JPMorgan Chase

Of course, if a recession were to hit, the outlook for business leaders could quickly darken. With so many unknowns, some analysts predict that M&A activity will take a hit, especially in the middle market private sector.

A recent report in MarketWatch underline S&P Global Market Intelligence data, which revealed a 30% year-over-year decline in private equity and venture capital deal volume last May. Continued uncertainty could dampen deals as “volatility makes it harder for investors to price things,” Cyndx Networks founder and CEO James McVeigh told the publication.

Even so, Glassman says mid-market optimism could keep deals flowing. Turning some key challenges such as tight labor market and supply chain bottlenecks into investment opportunities in technology and digital transformation could make middle market companies even more attractive to potential buyers.

“I’ve always thought that small and medium-sized businesses had a lot more growth potential if they were forced to automate, and that’s what crises tend to do,” Glassman notes. “If small and medium-sized businesses have experienced an upgrade in the past two years, as our surveys suggest, that tells you that everyone is becoming more efficient and that they understand it. And that makes them more attractive as takeover candidates.

Related content: Manufacturer M&A outlook persists despite headwinds


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