Photo: GEreport via YouTube
Today the Federal Reserve said the US economy is undergoing a moderate recovery.Anil Makhija, a professor at the Fisher College of Business, presented this morning at GE’s Middle Market Summit about what a huge role mid-sized firms have played in the recovery.
The sector — which is defined as firms with revenues between $10 million and $1 billion — grew employment by 3.8 per cent last year, versus 2.5 per cent in small and 0.8 per cent in large firms; and it created a 41 million net jobs through the crisis.
Makhija shared his PowerPoint presentation with us, and we also briefly caught up with him over the phone.
“The most important thing is the middle market indicator,” he tells us. “It’s been the engine of growth and continues to outperform large firms. In our last Q3 survey, S&P 500 companies are growing only at 1.5 per cent, compared to 3.7 per cent for mid-sized firms.”
There are now nearly 200,000 mid-sized firms in the U.S., and they’re spread across the country and all industries. “They’re mostly privately held, not under pressure of the next quarterly report, and can take the long-term perspective,” he says. “The middle market has been growing even though industry [e.g., manufacturing] has been weak.”
They’ve played the biggest role in the recovery, he says, but just haven’t gotten as much attention for it: “One reason is that small firms have informal government supports. Large firms have deep pockets and are in the public eye. There’s no advocacy and no easy data.”
Although these firms have been growing in recent years, their global and overall economic outlook is negative. “If you look at revenue expectations, if there’s a recovery, it’s a tepid one,” he says. “The rate of growth is respectable, but it’s been declining. … When you see this dropping off of expectations, ask why. Some of the challenges these firms are dealing with are government actions. Health care costs have been on top of their lists. Then there’s uncertainty about government action, like the fiscal cliff.”
Makhija’s report also shows that mid-sized businesses are holding onto more cash and not investing and hiring as much as they were back in Q1 and Q2. “These firms are very diversified across industries, all around the nation and are good barometers for the economy as a whole.”
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