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Can Medium-Sized Companies Forecast Recession's End?

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Jeff Hynes admits he's bursting with confidence these days. As CEO of Composite Horizons, a 34-year-old aerospace parts manufacturing company with 180 employees and $30 million in annual revenue, he has overseen the quiet expansion of a manufacturing business that few outside the airline industry ever think about: jet engine parts using advanced materials such as carbon fiber.

Two years ago he hired 60 new employees, and he expects revenues to double in the next couple of years.

"We are a true reflection of what's happening in commercial aerospace coming out of the recession," Hynes said. "There's all this pent-up demand."

As the country slowly emerges from a long recession, Composite Horizons of Covina, Calif., is growing.

"We're able to be a lot more creative and quicker to market than if we were significantly larger like a corporation, but being larger than a small business allows us to be diversified as well," Hynes said.

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Mega-corporations, small businesses, and trendy start up companies grab most of the financial news headlines – but middle-sized companies may be the real driving force for the U.S. economy.

In fact, if you combined all the middle-sized companies – defined as those with annual revenues between $10 million and $1 billion – into a country, its GDP would rank it as the fourth-largest economy in the world behind Japan's, according to the National Center for the Middle Market at Ohio State University.

"Small business has always had the eye of the politicians, and of course the large businesses have the lobbying weight," said Hynes. "But if you look at the jobs and the economy, it's the middle market that matters."

Middle market companies represent more than a third of American jobs and more than $9 trillion in annual revenue. About 200,000 U.S. companies are considered middle market, contributing $3.84 trillion to GDP in 2012.

They are also job growth engines. These companies added 1.17 million new jobs in 2012, and 42 percent said their workforce increased from the same period last year, according to the Middle Market center. The average employment growth in 2012 for middle market companies was 2.7 percent, compared with 2.1 percent for large U.S. firms, according to ADP.

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The services industry — companies in healthcare or the restaurant business, for instance — showed the most growth, adding approximately 950,000 employees. They anticipate adding 1 million more jobs in 2013.

"What we see is that even in difficult times the middle market grew," said Anil Makhija, academic director of the National Center for the Middle Market. "During the recession, when the large firms dropped employees, middle market firms could afford to take a longer-term perspective. Many of them are family-owned so they're not fixated on quarterly earnings."

While small businesses struggled to pay the lease or turn a profit, and large corporations laid off thousands of workers to satisfy shareholders, medium-sized companies scooped up top talent and got creative.

And now? According to Makhija, the center's last quarterly survey of middle market companies showed the construction industry as one of two sectors with the fastest revenue growth -- this despite the housing industry's long slog through a historic downturn.

"The middle market is already starting to predict growth," Makhija said.