The National Center for the Middle Market report at the close of the third quarter revealed some interesting perspectives on what SMBs have to look forward to in 2019. This post will digest the key themes and ideas articulated by the report and provide some commentary on the implications.
The document reports that, “By every current measure, middle market business is good. Revenue is rocking, having risen 8.6% in the last year. Thirty-five percent of companies expanded into new domestic markets last year, and 41% expect to do so next year, reflecting their 88% level of confidence in the U.S. economy. Job growth is an impressive 6.4%, as the middle market continues to show that it deserves the most credit for the steadily falling U.S. unemployment rate.”
However, there are three factors looming—trade wars, changing political fortunes and rising labor costs in a low unemployment environment—any of which could potentially upend the apple cart and dampen the rosy outlook.
Trade Wars | President Trump is fomenting trade wars with many of America’s global trading partners. Putting any partisan leanings aside, there are bound to be consequences to making such dramatic changes to existing trade policy and executives across all verticals expect the new tariffs being implemented to hurt their bottom lines. Manufacturing, construction, wholesaling and retailers are among those most likely to feel the pain. Leadership in these industries is also concerned that existing, long-standing customer relationships may be permanently damaged or destroyed by trade war and this has long-term implications for these industries overall.
Changing Political Landscape | Executives named government one of their premier challenges in the second half of 2018. The sense of the unknown and the careening nature of today’s politics is making it difficult for those responsible for workforce planning to make confident decisions about how and where to allocate future resources. As a result, many plans are being postponed or sidelined altogether.
Rising Labor Costs | Although the number of executives identifying rising labor costs as a top challenge dropped from 26% to 19% quarter over quarter, the number is still 14% higher than at this same time last year. Clearly, cost still weighs heavily. Rising interest rates, energy/production costs and the impact of tariffs are all squeezing margins.
Overall, the Middle Market Report reveals ongoing strength and categorically positive outlook for SMBs heading into 2019. Business challenges are ever present and the aforementioned notwithstanding, SMBs are poised to excel in spite of trying conditions. Those equipped with a solid workforce management plan will be better positioned to overcome these challenges and to proactively navigate the changes that all agree are coming to the US and global economies.