Deloitte Survey: Mid-market executives' confidence in the economy high; hiring and capital investments stabilize

Combating employee attrition and increasing technology investments are key priorities

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Jun 22, 2015, 12:00 ET

NEW YORK, June 22, 2015 /PRNewswire/ -- Despite remaining confident in growth prospects for the U.S. economy, mid-market executives are moderating investments in hiring and capital expenditures and focusing instead on initiatives that are likely to drive productivity and increase engagement, according to Deloitte's Mid-Market Perspectives: 2015 Report on America's Economic Engine.

"After accelerating investments six months ago, mid-market executives are now making deliberate tactical shifts in order to best prepare for growth," said Roger Nanney, vice chairman, Deloitte LLP, and national managing partner of Deloitte Growth Enterprise Services. "These adjustments are in part predicated on new market pressures including a stronger labor market that is creating fresh opportunities for workers and raising the stakes for employers."

Confidence in the U.S. economy remains high, mid-market revenue growth expected
Over the last six months, the number of executives who expect the U.S. economy to grow between 2 and 3.5 percent has jumped several points to 39 percent from 35 percent. In line with Fall 2014 expectations, more than one third (36 percent) of mid-market executives expect the U.S. economy to grow in excess of 3.5 percent.

Further, the majority of mid-market executives (68 percent) expect their revenue to grow more than 5 percent while a quarter anticipate a significant jump of more than 25 percent in the next 12 months. Interestingly, a significantly higher number of companies versus a year ago (70 percent vs. 59 percent in Spring 2014) report generating more of their revenues from overseas.

Capital investments moderate, tech investments increase
Despite ongoing confidence in the direction of the economy and overall business growth, capital investments have slowed in the last 12 months, with only 43 percent of executives indicating an increase in these expenditures, compared with 47 percent in the Fall.

"This apparent pause in capital investments should not be considered a sign of deceleration in the mid-market," said Kevin McFarlane, a managing director of Deloitte Corporate Finance LLC. "The mid-market's future indicators are looking quite strong and, despite a respite in harsh winter months, the U.S. economy is expected to grow at a healthy pace. Barring an external shock to the economy, the mid-market is likely to remain in expansion mode."

In order to remain in growth mode, mid-market players seek to adopt the latest productivity-enhancing tools and are prioritizing spending on technology. New technologies such as cloud computing (58 percent vs. 46 in Fall 2014), data analytics (53 percent vs. 40 percent in the fall), and automation of business processes (43 percent vs. 24 percent in the fall) are all expected to get additional funding in the next 12 months.

Employee retention and trust become key priorities
In line with broader U.S. employment trends, hiring in the mid-market has cooled off since Fall 2014. Although the majority (55 percent) of mid-market executives report increases in their domestic, full-time workforce over the past 12 months, there was a drop in the number of mid-market executives—to 58 percent from 63 percent last Fall—who plan to hire in the coming year.

As hiring stabilizes, mid-market executives are simultaneously challenged with two issues impacting their current employee base: lack of trust and increasing turnover rates. In fact, mid-market executives cite employees as the group that is least likely to have high levels of trust in their business. At the same time, the majority (62 percent) say there's been an increase in voluntary turnover in the past year.

Recognizing the impact these issues can have on productivity, mid-market companies are turning their attention to engaging and retaining current employees. A growing number of mid-market executives (32 percent vs. 23 in Fall 2014) plan to increase compensation in the coming year and more than half (52 percent) highlight training as a top talent priority.

"Given the tight labor market, re-instilling employee trust and incentivizing workers will be critical to both combat rising attrition rates and prepare the mid-market for the next stage of growth," concluded Roger Nanney. "The good news is that mid-market companies appear to be taking measured steps to tackle challenges, build on their success, and stay ahead of the competition."

Research Methodology
From April 7 to April 16, 2015, a Deloitte survey conducted by OnResearch, a market research firm, polled 525 executives at U.S. mid-sized companies about their expectations, experiences and plans for becoming more competitive in the current economic environment. Respondents were limited to executives at mid-market companies with annual revenues between $50 million and $1 billion.

About Deloitte Growth Enterprise Services
The Deloitte Growth Enterprise Services team delivers a distinctive client experience through service offerings tailored to address the unique needs of mid-market and privately held companies. View the entire report.

As used in this document, "Deloitte" means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

SOURCE Deloitte