Economic uncertainty triggers more caution among mid-size companies

Executives of mid-size companies have become more cautious about the US economy – a sentiment that is reflected in hiring and expansion strategies and plans to invest in technology, according to new research.

About 52% of mid-market executives expect the US economy to grow less than 2% over the next 12 months, according to a Deloitte survey of about 528 executives whose companies generate annual revenue from $50 million to $1 billion. That was up from 42% a year earlier.

Executives showed more optimism when they were asked the same questions in September 2011: Fifty-eight per cent expected US GDP growth to exceed 2%. Eight months later, 48% felt that optimistic.

A more cautious outlook for the economy corresponded with executives’ level of uncertainty rising.

“It would not be surprising to see companies wait on the sidelines until a clearer picture emerges and they can move forward with greater certainty, and perhaps less risk,” Tom McGee, national managing partner at Deloitte Growth Enterprise Services, writes in “Mid-Market Perspectives: 2012 Report on America’s Economic Engine”, a report on the survey results.

The combined revenues of the companies included in the Deloitte survey constitute about 40% of US GDP, which gives this group considerable heft. About three-fourths of the respondents were from privately held companies.

Mid-size companies are adapting to the rising level of uncertainty by lowering hiring expectations, the survey found. Forty-two per cent of respondents expected to increase their workforces this year, down from 48% a year earlier.

Still, 44% of them expect the US unemployment rate to decline during the next 12 months.

Other findings include:

• Few companies plan to access external financing to grow their businesses. The number of executives who did not expect to use external financing nearly doubled to 27% this year. One reason could be stronger balance sheets of mid-size companies. Twenty-eight per cent reported higher cash balances than a year ago.

• Executives said they will focus on increasing revenue through innovation, capturing higher-value customers and improving customer loyalty. More companies plan to increase efforts to sell abroad.

• The appetite for technology that increases productivity changed from September to March. Forty-six per cent of the executives expected to invest in technology designed to automate business processes this year, down from 52% in September. At the same time, investments in cloud computing and software as a service have become hot items amongst 40% of the executives, up from only 29% in September.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.