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Where the Jobs Are

Where the Jobs Are
Kathryn Hauser
June 14, 2016
Job creation across the American economy tumbled in May, with the economy adding just 38,000 positions.  Economists, analysts, and politicians are trying to make sense of these numbers.  The sharp decline in labor force participation over the first half of 2016 casts doubt on hopes for a stronger economic recovery.  What’s not being discussed is where the new jobs are being created – and what can be done to encourage firms to hire more workers. 
If recent history is any guide, we can say with confidence that the majority of the 38,000 jobs created in May were in firms that comprise the “Mighty Middle”, rather than in very large or very small firms.  According to the National Center on the Middle Market at the Ohio State University (NCMM), the American middle market is defined as companies with revenues between $10 million and $1 billion.  These firms represent only 3% of all U.S. companies but are 200,000 strong and present in every state and region of the country.  Middle market firms are found in every sector, led by services, manufacturing, wholesale trade, retail trade, construction, financial services and healthcare.  Some of these firms are local or regional players, others are nationally and internationally known.  Those that export have significantly higher growth and revenue than those that are not globally engaged. Taken together, the America’s “Mighty Middle” would be among the world’s top five economies.
While small business and large multinationals frequently garner press attention and policy focus, middle market companies just keep on working.  They employ nearly 48 million people, contribute one-third of private sector GDP, and are responsible for as much as 60% of new jobs created since 2014. These firms consistently outperform both small and large companies. Analysis by the NCMM shows that middle market growth over the past 12 months (1Q’16) was 6.3%, compared with -3.4% for the S&P 500.  Middle market employment increased by 3.6% versus just over 2% for large and small companies.
Based on the Center’s most recent survey, some 52% of middle market firms project positive revenue growth for the coming year, with confidence up across the global, national and local economy.  What’s more, middle market companies consistently invest capital to add jobs, equipment, make acquisitions and train employees, and 63% say they plan to invest in 2016 and 34% expect to add jobs.

The audit, tax and consulting firm RSM US has developed a U.S. Middle Market Business Index to quantify business conditions affecting the middle market.  The 2Qtr 2016 report shows that respondents intend to increase hiring and compensation as well as capital expenditures during the next six months.  RSM Chief Economist Joseph Brusuelas commented that, “Current and future expectations for earnings provide a stark contrast with conditions in the corporate sector that have broad exposure to the global economy. This shows the middle market continues to outperform large corporations and is anticipating a stable economy in the second half of the year.”
Instead of bemoaning the anemic job creation numbers for May, economists, analysis and politicians should focus their attention on what is working and what more can be done to strengthen America’s middle market – which is a strong, yet under-appreciated, engine of growth in our economy.

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