Take an extra bow if you own or run a Middle Market company.
2016 was a great year for the Middle Market. Reports on company performance in 2016 are surfacing, and show the Middle Market continued to be a turbocharged engine driving economic growth in the U.S. The National Center for the Middle Market compiled 20 full quarters of data through Q4 2016 in its recently-released Middle Market Indicator (MMI). Annual revenue growth in the Middle Market in 2016 was 6.9%, far above the S&P 500 rate of 4.4%. The Middle Market led hiring growth at 5.4%, exceeding its five-year historic average rate of 3.4%, and blasting ahead of large businesses at 2.4%, and small businesses at 1.4%.
The MMI estimates that Middle Market revenue in 2016 increased at almost double the rate of national GDP growth. Already employing approximately 47.9 million people, the Middle Market created three out of every five net new private sector jobs in 2016. That’s 60% of net new jobs last year, for a sector comprised of about 200,000 companies and making up about 1/3 of the private sector GDP.
What drives the Middle Market success? Organic growth fueled by upside opportunity not always available to large corporations or within the reach of resource-limited small companies. Innovation to stock pipelines of new products and services. MMI reports that 40% of Middle Market companies introduced a new product or service in 2016. Unlike large public companies, private companies making up most of the Middle Market can more easily exercise conservative fiscal management with low debt and high reinvestment or savings rates, and cautious hiring practices. And a five-year run of overall domestic economic growth, low interest rates, cheap energy, and almost no inflation to drive up the cost of materials and wages, certainly set a perfect stage for great performance.
Will there be an encore performance for the middle market in 2017?
A survey of Middle Market executives by PWC shows this segment is “still set to outperform US GDP, but with less gusto.”  Levels of uncertainty in the domestic economy have been building through the end of 2016, along with uncertainty about international conditions. Political change is also a source of uncertainty, along with growing concern about possible conflict that will disrupt normal business patterns. Top challenges ahead for 2017 identified by Middle Market executives are familiar to Silicon Valley Middle Market companies: finding and keeping workforce talent necessary for growth, taxes for federal, state and local governments, healthcare costs, and data security.
In California, a torrid streak of growth is showing signs of tapering. The MMI California report shows 2016 revenue growth down slightly, to 6.1% compared to the national rate of 6.9%. The California Middle Market is remarkable: comprising less than 1% of all California companies, the California Middle Market employs nearly 30% of the California workforce, and generates over 20% of total California business revenue. Despite (or perhaps because of) the cooling rate of growth, Middle Market executives in California remain more optimistic than their already optimistic cohort in other parts of the U.S.
How did your company fare in 2016? Are you forecasting growth in 2017?
Don’t forget to join us at our Annual Middle Market Forum on May 11. Details upcoming — Stay tuned.
 PWC Private Company Services: “Trendsetter Barometer – Business Outlook” 3Q 2016, http://www.pwc.com/us/en/private-company-services/publications/pcs-trendsetter-barometer.html.
 National Center for the Middle Market, “California Middle Market Indicator 4Q 2016”, http://www.middlemarketcenter.org/Media/Documents/MiddleMarketIndicators/2016-Q4/NCMM_4Q16_California_infographic_01.pdf.