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America’s Economic Engine Stalling

Jeff Titcomb | Photographer's Choice | Getty Images

A tumultuous economic climate in Europe, major governmental reforms and possible regulatory changes on the horizon, and a presidential campaign looming — it’s easy to understand why uncertainty has increased among leaders of U.S. mid-market companies over the last six months.

But what some may not expect is the optimism and determination of mid-market leaders to address challenges and to grow and move forward despite this uncertainty. Such optimism can be found in Deloitte’s second annual mid-market survey, Mid-Market Perspectives: 2012 Report on America’s Economic Engine.

I’m not necessarily surprised. In my travels and meetings, I have heard mid-market executives express greater confidence in the growth expectations of their companies than in the overall economy. Perhaps it is the inherent spirit of entrepreneurism many mid-market company leaders possess. Maybe it’s because of the productivity gains they’ve achieved and healthier balance sheets they’ve built over the past year. Maybe all of the above. But it is exactly this kind of approach that gives me the confidence that these companies can not only survive, but thrive, and in the process, contribute to restarting America’s economic engine.

Conducted in April, our survey polled 528 senior executives at U.S. midsize companies across diverse regions and industries. It confirmed that uncertainty about the economic outlook is high, and 41 percent of respondents say the economic outlook is much more uncertain than it was just a year ago. Contributing to this anxiety is the presidential campaign and a lack of a resolution on tax policy and corporate tax rates.

Despite these “wait and see” reasons, mid-market companies are forging ahead with plans to invest — in products, in markets and in growth strategies to increase productivity, including talent management and technology.

Looking Ahead and Going Forward

The S&P 500 companies hold more than $1 trillion in cash, and the trend is comparable for mid-market companies. Twenty-eight percent recorded higher cash balances in the past year, and 35 percent predict higher cash balances in the year to come. As a result, companies expect to fund their investments internally rather than relying on external financing. For example, last year, 38 percent said they would borrow to fund U.S. business expansion — this year, the figure is only 23 percent.

Notably, mid-market executives aren’t expecting to use this additional cash to expand their workforce. In fact, more than half of respondents don’t expect the workforce to change. Rather, 51 percent of companies are intending to invest in training programs to leverage and train the talent they have; up from just 31 percent last year, signaling that companies may be realizing the implications of a talent shortage and are starting to view current employees as a long-term investment in productivity.

Most respondents said the greatest potential to increase productivity is through technology, including automation, business intelligence and analytics, and the market is evolving quickly. Forty percent of respondents now list cloud computing and software as a service among the top three tech investments for 2012, up from 29 percent last year. This movement represents a democratization of technology by providing access to previously unaffordable technology, allowing mid-market companies to better understand their markets, supply chains, customers and profitability, and ultimately improve their competitiveness.

No matter what they’re doing, mid-market companies are not standing still. While no one can predict what will happen over the next year, the determination and actions of these organizations will certainly help them, and hopefully the entire U.S. economy, achieve meaningful economic growth.

Tom McGee is National Managing Partner of Deloitte Growth Enterprise Services, Deloitte, LLP.

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