Middle market manufacturing companies enjoyed strong growth through the first half of 2023, but still struggle with inflation and employment challenges, according to a report from The National Center for the Middle Market (NCMM), a collaboration between Ohio State University’s Fisher College of Business, Chubb insurance, and Visa credit cards.
That trend was also true for U.S. middle market companies across all sectors overall, which thrived against the backdrop of a challenging economy, as nearly three fourths reported an improvement in overall performance compared to year prior, the report found. Those findings are supported by top line growth over the past 12 months, overall employment growth, and continued expansion into new domestic markets with new products or services introduced, according to the group’s 2023 Mid-Year Middle Market Indicator (MMI), a semi-annual report which surveyed 1,000 executives of middle market companies.
Measured at the middle of 2023, 60% of all middle market firms found inflation risk as extremely or very difficult to manage, a 3%-point decrease over 2022 data. In addition, supply chain risk also decreased 7% points to 43% , and just 49% of middle market firms indicated recession risk remained extremely or very difficult to manage, an 11%-point decrease from the prior study.
As companies continued to grapple with inflationary concerns, their costs rose and ultimately affected all facets of their business. “Even with inflation risk declining, it is still having far reaching effects with 40% reporting a negative impact in the last 6 months according to the MMI. This includes an impact on business costs, including increasing commercial construction material costs; an important factor for companies rebuilding following a natural catastrophic event,” Michelle McLaughlin, Executive Vice President and Chief Underwriting Officer, Chubb Middle Market, said in a release. “In fact, we are seeing more severe and frequent weather events that are impacting our clients. We work with them to ensure they have adequate coverage, as well as solid risk mitigation strategies in place to help them stay ahead of these types of economic impacts.”
Looking at the manufacturing sector specifically, the sector’s most concerning factors at mid-year 2023 were: inflation (26%), workforce (18%), supply chain (18%), recession (14%), access to capital (9%), catastrophic incidents (8%), and geopolitical stability (7%). While the worst supply chain fears have receded since mid-2022, when they were by far the top concern for middle market manufacturers, they continue to negatively impact these companies’ current revenues as well as their revenue outlook for 2024, the report said.
In the meantime, workforce issues have moved up to the second major concern, as most middle market manufacturers are challenged by finding employees with the right skills and note that digital skills will be crucial to their success in the coming years. As a result of workforce and hiring issues, these companies say that they are having employees work longer hours or more shifts.
In terms of business risk, infrastructure and often-related catastrophic incident concerns weigh into insurance decisions for more than half of middle market manufacturers, the report said. With rising severe weather damages and construction costs, companies have to be prepared for rebuilding and keeping business operations running in the case of a catastrophic event or impacts from aging infrastructure.
According to Chubb, companies can control that risk by using Internet of Things (IoT) technologies—such as water shutoff valves—alongside business continuity planning efforts. Those steps can minimize exposures and help companies rebound quicker from these types of climate-related events. But with many employees working longer hours due to the labor shortage, there is a heightened risk of injury or costly mistakes. Risk assessment and mitigation resources, such as ergonomic evaluations and proactive training, can help control the cost of employee injuries and lost productivity, the report found.
