Q4 2021: Middle market grapples with supply chain; overall conditions solid
Snarled supply chains and the spread of the delta variant combined to reduce the RSM US Middle Market Business Index to 129.7 in the final quarter of the year from a peak of 143.7 previously.
An easing was to be anticipated, though, and the current reading is in line with the pre-pandemic score of 126.2 in the final quarter of 2019.
Given that we expect a re-acceleration in household spending and higher fixed investment by businesses to close out the year, we anticipate that middle market business conditions will remain solid even as firms work to confront challenges in securing materials and workers.
Below is a snapshot of the MMBI Q4 2021 top findings:
Executives’ responses to the survey reflected the slowing economy. Rising prices and what looks like a behavioral shift among workers provide a more challenging context for domestic middle market businesses. Responses to nine of the 10 survey questions declined, including the outlook on the economy, revenues and net earnings. Only 37% of respondents indicated the economy had improved in the quarter, even as 51% anticipated general improvement through the first half of next year.
The cost of goods
In our estimation, the primary concern among middle market participants revolves around the cost of goods used at earlier stages of production and the cost of intermediate goods, as well as challenges around passing along those price increases. For now, aggregate demand is more than sufficient to absorb the higher costs in the production process. In fact, we think that falling unemployment and rising income have made it somewhat easier to pass along price increases, which in turn is part of the relatively optimistic outlook.
- 58% noted they had increased prices charged (prices received) down from 60% previously.
- 34% reported somewhat or substantially improved inventory levels; 46% indicated they expect the same over the next six months.
- 45% said they had increased hiring, down from 56% in the previous quarter.
- 54% indicated they had increased compensation to obtain workers.
The report also included initial findings on special questions related to the current work environment in middle market businesses.
- More than a third indicated they now have employees working remotely who weren’t doing so before the onset of the pandemic.
- Of those, 65% are embracing hybrid work, allowing their employees to work in the corporate workplace part of the time and in remote locations for the remainder.
Look for our full special report on this topic in January.
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