U.S. Economy

Midsize Companies Get No Respect


Flight mechanics and pilots perform inspections on R44 helicopters at the Robinson Helicopter facility in Torrance, Calif.

Photograph by Patrick T. Fallon/Bloomberg

Flight mechanics and pilots perform inspections on R44 helicopters at the Robinson Helicopter facility in Torrance, Calif.

Midsize companies are like middle children: ignored. The National Center for the Middle Market calculates that U.S. companies with revenue between $10 million and $1 billion a year account for one-third of private-sector output. But big companies get all the attention, because they’re big, and small companies get all the love, because they’re perceived as the champions of job creation. (Just listen to President Barack Obama and Republican challenger Mitt Romney compete to out-praise small business.)

The National Center for the Middle Market is studying those neglected midsize companies with funding from GE Capital (GE), the biggest supplier of financing to the sector. The center is part of Ohio State University’s Fisher School of Business. It conducts a quarterly survey of 1,000 companies that’s designed to reflect the composition of the entire sector.

On Oct. 24, the center announced that middle market companies increased head count by 2.2 percent over the 12 months through the third quarter, outpacing what it said was 1.7 percent growth in economywide employment. (The Bureau of Labor Statistics puts the economywide figure at 1.4 percent.)

Revenue grew 5.5 percent over the year, vs. 1.6 percent for the big companies in the Standard & Poor’s 500-stock index, according to the National Center for the Middle Market.

“Quarter after quarter, we see middle market firms emerge as the engine of growth in the U.S. economy,” Anil Makhija, who is the center’s academic director, said in a statement.

In an interview with Bloomberg Businessweek’s Matthew Philips, Chief Financial Officer George Cook of MacLean-Fogg, an auto parts maker based in Mundelein, Ill., said: “Middle market companies have to be big enough to compete internationally, but nimble enough to respond and make a decision quickly and get on with it. That’s very true of us.”

The bad part of this good-news story is that the outlook is darkening. Projected employment growth over the next 12 months is 1.3 percent and projected revenue growth for the sector is 3.7 percent. In a survey, more than 70 percent of the middle market executives said they were “not confident” or “somewhat not confident” about global economic prospects.

But even their negative outlook has a silver lining. It turns out that executives aren’t necessarily as pessimistic as the headline numbers in the survey might suggest, says Dan Henson, chief executive officer of GE Capital Americas. “If you ask them their view on the global economy, they’re very negative,” Henson said in an interview before the latest quarterly report was released. “You pull back to the U.S. and they’re still fairly down. You ask them about their industry and they feel a little better. Then you ask them about their own company and they’re confident in their ability to maneuver.”

Coy_190
Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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