The growth of U.S. middle market firms (companies between $10 million and $1 billion in revenues) is outpacing the national average, with an 87% increase in number of firms, a 103% surge in employment, and a 100% rise in revenue since 2011.
The latest Middle Market Power Index: A Detailed Look at Top Industries from American Express and Dun & Bradstreet says an industry sector analysis of this middle market growth can help uncover larger economic trends, which have implications for workforce development and economic investments. Within the sectors that include most middle market firms – manufacturing (18%), wholesale trade (17%), and business services (11%) – several industry subcategories are fueling the growth in number of firms since 2011:
• Business services – Legal services (284%)
• Manufacturing – Industrial, commercial, or computer equipment (163%)
• Wholesale trade – Durable products (160%)
The previous report found that middle market companies are powering the U.S. economy – as much as 53% of the net new jobs over the past five years have come from middle market companies. The latest report found that the subcategories experiencing the strongest employment growth are generally also undergoing the strongest revenue growth.
Two areas in particular, legal services and durable products, have led their industries in all three measures, indicating these are becoming more prominent in the American economy.
As our economy becomes more service and technology focused, it stands to reason that the younger firms entering the middle market are not going to be producing the same products or services as companies that were founded over 50 years ago.
Manufacturing is one industry where this generational difference is particularly strong. While it remains a foundational sector regardless of firm age, the types of products being manufactured differ between younger and older middle market firms.
Middle market firms that have been in business for 50 years or more are much more likely than their youngest counterparts (those in business less than 10 years) to be making fabricated metal products – 17% vs. 10%.
The youngest middle market manufacturing firms are instead much more likely than those in business 50 years or more to manufacture either electronic equipment or components (11% vs. 5%) or chemical products (12% vs. 5%). The shift in types of products being manufactured suggests how demand for certain goods has changed over time.
Although manufacturing is the most prevalent middle market industry, business services is seeing significant gains as well. Middle market firms that have been in business 10 years or less are more likely to be in business services (15%) compared to those that have been in business 50 years or more (5%).
Within business services, the subcategory of legal services has been driving growth in number of firms, employment, and revenues and is dominated by middle market firms that have been in business 50 years or more.
These older firms represent 25% of middle market legal services companies, compared to 2% of middle market legal services firms that have been in business less than 10 years. This can be an indicator that, while legal services have led growth in this sector, it takes much longer for firms in this industry to scale.
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