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Middle Market Optimism Surges, Small Businesses Remain Cautious, Umpqua Bank Report Finds

Written by Zev Glass on Jun. 25th, 2024

In a comprehensive study conducted by Umpqua Bank, the 2024 Business Barometer reveals a significant divergence in optimism and strategic planning between middle-market companies and small businesses in the United States. Released on June 13, 2024, the report underscores a marked increase in confidence among middle market companies, while small businesses continue to navigate financial challenges with caution.

For the first time in the study’s six-year history, the gap between the outlooks of middle market and small businesses has widened considerably. Middle market companies, defined as those with annual revenues between $10 million and $500 million, have reached a six-year high in optimism, with 68% rating the economic outlook as excellent or good. In stark contrast, only 29% of small businesses share this positive sentiment.

“It’s a tale of two economies right now,” said Tory Nixon, President of Umpqua Bank. “While businesses of all sizes have proven resilient during a remarkable period of uncertainty and disruption, middle market companies have adapted especially well to the economic pressures of the past couple of years. They are poised to move forward with the most confidence we’ve seen since our study began.”

The report highlights that middle-market companies are not only optimistic but are also gearing up for significant strategic investments. Nearly 70% expect an increase in demand for their products and services over the next 12 months, and 60% anticipate greater profitability. Investment in digitization, expansion plans, real estate growth, and employee hiring are at record levels. Notably, 52% are considering acquisitions, while 43% are exploring mergers.

Richard Cabrera, Head of Commercial Banking at Umpqua Bank, pointed out, “Middle market companies have the scale and capital to grow in today’s market. More of them are growth-minded than last year and investing in AI, automation, and sophisticated tools to safeguard their operations and customers.”

In contrast, small businesses are facing a more subdued economic environment. Although recession fears have decreased, inflation concerns have resurged. Only 43% of small businesses expect an increase in demand, and just 38% foresee profitability growth—the lowest levels in four years. Consequently, their plans for the next 12 months are more restrained, with fewer intending to expand their workforce, finance growth, or invest in new technologies.

The adoption of generative AI is another area where middle-market companies are leading the way. The study reveals that nearly 80% of these companies are implementing AI technology, with 86% planning to hire personnel with AI expertise in the coming year. In comparison, only 28% of small businesses are prioritizing broad AI implementation.

Supply chain strategies also show a stark difference. While 51% of middle-market companies have moved their manufacturing or supply chains back to the U.S. in the past year, small businesses have been slower to make similar shifts. Cybersecurity remains a top priority, with over 80% of middle market companies planning to invest in financial tools to protect their payment systems, compared to 43% of small businesses.

The upcoming congressional and presidential elections further highlight the divergent strategies. Nearly half of middle market companies are expediting key decisions ahead of the elections, whereas 23% of small businesses are delaying them.

The Umpqua Bank 2024 Business Barometer, conducted by DHM Research, surveyed 1,200 business owners, executives, and financial decision-makers across the U.S. between April 22 and May 2, 2024. The study includes a diverse sample, with 22% of middle market respondents and 19% of small business respondents identifying as minority-owned enterprises. The margin of error for the survey is ±2.8%.

As the economic landscape evolves, Umpqua Bank’s findings provide critical insights into the differing strategies and outlooks of U.S. businesses, highlighting the resilience and adaptability required to navigate the complexities of today’s market.

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