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Mid-Market Outlook: Economic Insights

Mid-market perspectives blog: Growth enterprise services

Posted by Tom McGee on February 21, 2013

This past week, I had the opportunity to interview Deloitte’s Director of Global Economics, Dr. Ira Kalish, for our second Economic Perspectives webcast. We talked briefly about how the economic outlook has changed over the past few months, most notably with the Presidential election and actions around the fiscal cliff, then moved on to focus on current economic issues and the implications of the global economy for mid-market and private companies.

Dr. Kalish described his view of the economic outlook as one of “cautious optimism,” a sentiment shared by many of the mid-market executives we have surveyed over the past few years. On the positive side for consumers, he cited real gains in income, which represent real gains in purchasing power; acceleration in employment growth in the past few months; substantial pay down of consumer debt, and an increase in both equity and home prices, which has increased consumer wealth.

According to Kalish, the increase in the payroll tax that took effect in January is a negative factor. In addition, he noted, “We also have the impending sequestration whereby about $1.2 trillion in spending cuts over ten years go into effect, split between defense and non-defense discretionary spending.  If that happens, and we don’t know if it will, that will have some negative impact.”

On the industrial side, there are indications of a turnaround, with increases in output and new orders for capital goods. “It appears that heavy industry and business in general is gearing up for more output in the coming year, perhaps on the expectation that the recession in Europe will end, which I think it will, and that China is already turning the corner,” Kalish said. He also noted a pickup in credit market activity, especially for small and medium-sized businesses.

One ongoing issue is the skills gap, with companies unable to find employees with the level of skill and education required to fill many of the more technical positions, despite continued unemployment. According to Kalish, long-term investment in human capital is needed to correct this imbalance, but a short-term alternative might be immigration reform, which would bring more educated technical workers to the United States.

During the webcast, viewers provided real-time feedback on current issues with their responses to four polling questions:

  • When asked at what pace they expected the U.S. economy to grow in the next 12 months, the majority of viewers (60%) said “slightly,” while 27% selected “moderately.”
  • When asked to indicate their company’s primary obstacle to growth, the top response was uncertain economic outlook (49.8%), followed by lack of confidence in the economy (14.5%).
  • Approximately 37% of viewers said they expected the size of their full-time work force to remain the same in the next year; another 35% think it will increase up to 5%.
  • Top investment priorities for 2013 were new products and services (34.9%), followed by technology (21.8%).

Obviously it’s not possible to cover the broad range of topics discussed on the webcast in this brief overview, but you can view a replay by clicking here. In addition to the webcast, last week we also launched our 2013 survey on America’s economic engine and I look forward to sharing those results in the coming months.

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