Umpqua Bank 2024 Business Barometer: U.S. Middle Market Optimism Surges, While Small Businesses Proceed Cautiously

Rhea-AI Summary

The 2024 Umpqua Bank Business Barometer reveals a growing optimism gap between middle market companies and small businesses in the U.S. Middle market firms, defined as those with $10M-$500M in annual revenue, show a 68% optimism rate, the highest in six years, and plan significant investments in digitization, AI, and expansion. In contrast, small businesses exhibit cautious sentiment, with only 29% optimistic about the economy and plans for growth remaining muted due to ongoing cost pressures. Key findings highlight that 70% of middle market firms expect increased demand, 60% foresee greater profitability, and 88% plan to invest in digitization. Conversely, small businesses report low expectations for demand (43%) and profitability (38%), and growth plans. The study, conducted from April 22 to May 2, 2024, underscores the resilience and strategic readiness of middle market firms compared to the cautious stance of small businesses.

Positive

• 68% of middle market companies rate the economic outlook as excellent or good.
• Middle market firms exhibit the highest optimism in six years.
• 70% of middle market firms expect increased demand for products and services.
• 60% of middle market companies foresee greater profitability.
• 88% of middle market firms plan to invest in digitization.
• 65% of middle market firms intend to finance expansion plans.
• 60% of middle market companies plan to expand their real estate footprint.
• 54% of middle market firms will add employees.
• 52% of middle market companies are considering acquisitions.
• 43% of middle market firms are contemplating mergers.
• 41% of middle market companies experienced a cyberattack and are prioritizing cybersecurity.
• 86% of middle market firms likely to hire personnel with generative AI experience.
• 51% of middle market companies moved supply chains back to the U.S. in the last 12 months.

Negative

• 29% of small businesses rate the economic outlook as excellent or good.
• Small businesses show the lowest optimism since 2020.
• 43% of small businesses expect increased demand for goods or services.
• 38% of small businesses expect profitability growth, the lowest in four years.
• 28% of small businesses plan to add employees.
• 25% of small businesses intend to finance expansion.
• 23% of small businesses plan to expand their real estate.
• 33% of small businesses will make significant changes to products or services.
• Small businesses are more affected by inflation and higher costs for goods and capital.

Insights

Market Research Analyst

The latest Umpqua Bank Business Barometer reveals a significant divergence in sentiment between middle-market companies and small businesses. This disparity is important and offers insights into market dynamics. For middle-market companies, the surge in optimism to 68% reflects a broader economic recovery and potential growth opportunities. Companies in this segment are poised to invest heavily in technology, particularly AI and digitization, with 88% planning to invest in these areas. This emphasis on AI highlights a trend towards increased efficiency and productivity.

On the other hand, small businesses are facing persistent challenges with higher costs for goods and capital, leading to a more cautious approach. The survey indicates only 29% of small businesses have a positive economic outlook and essential growth indicators like demand and profitability are at multi-year lows. This may lead to slower growth and reduced competitiveness, impacting their market share.

For investors, the contrasting outlooks suggest potential investment opportunities in middle-market firms due to their growth plans and technological investments. However, caution is advised with small businesses due to their ongoing struggles. This divide also underscores the need to consider company size and sector-specific challenges when making investment decisions.

Financial Analyst

The findings from the Business Barometer align with broader financial market trends. Middle-market firms are indicating robust growth prospects, suggesting an increased confidence in economic stability. Their plans to invest in AI, real estate and expansions could translate to higher revenue streams and improved margins in the coming quarters. The adoption of AI is particularly noteworthy as it can significantly enhance operational efficiency and profitability. Investors should watch for companies in this segment that are leading in AI implementation.

For small businesses, the caution reflected in the survey is a signal of ongoing financial strain. Inflation and elevated interest rates are likely squeezing profit margins, leading to conservative strategies. The lower expectation for demand and profitability growth points to potential revenue pressures. This cautious stance is likely to affect their stock performance and could lead to lower investment returns in the short term.

Overall, this data suggests a favorable outlook for middle-market investments, but highlights considerable risks for small business investments in the current economic environment.

• Middle Market: Optimism soars to 68% and key growth indicators reach six-year high
• Small Business: Mood and plans hover near pandemic-era lows, even as recession fears subside

LAKE OSWEGO, Ore., June 13, 2024 /PRNewswire/ -- Umpqua Bank, a subsidiary of Columbia Banking System, Inc. (Nasdaq: COLB), today released the findings of its annual Business Barometer, an in-depth study into the mood, mindset and strategic priorities of small and middle market businesses across the U.S. For the first time in its six-year history, the study shows a widening gap between the outlook and plans of middle market companies and small businesses. Middle market optimism and key growth indicators have surged to six-year highs, while small businesses proceed cautiously as they manage persistent impacts of higher costs for goods and capital.

Since 2019, middle market companies (defined as $10M--$500M in annual revenue) are consistently more optimistic and ready to make a variety of strategic investments than smaller businesses. However, the difference between the two sectors' optimism—which had been fairly narrow—widened sharply in 2024. This year, 68% of middle market companies rate the economic outlook as excellent or good compared to just 29% of small businesses.

According to Umpqua Bank President Tory Nixon, middle market companies are poised to accelerate strategic investments and plans after a season of caution, while small businesses are even more inclined this year to hold steady as margins remain tight.

"It's a tale of two economies right now," said Nixon. "While businesses of all sizes have proven resilient during a remarkable period of uncertainty and disruption, middle market companies have adapted especially well to the economic pressures of the past couple years. They are poised to move forward with the most confidence we've seen since our study began."

Notable findings from this year's Business Barometer include the following:

Growing Middle Market Optimism Sparks Plans for Growth
Nearly 7 in 10 middle market companies rank the current economy favorably, surpassing a majority for the first time and 22 points higher than last year. In the next 12 months, more companies than in any previous study expect demand for products and services to increase (70%) and greater profitability (60%). They are also more likely than ever to invest in digitization (88%), finance expansion plans (65%), expand their real estate footprint (60%), add employees (54%) and consider acquiring (52%) or merging (43%) with another business.

Economic Divide Widens Between Middle Market and Small Businesses
In contrast to the middle market, small businesses are less optimistic than they've been since 2020. Though fewer list recession as a top concern this year (33%), inflation concerns spiked again after declining in 2023. Fewer than ever expect increased demand for goods or services (43%), and expectations for profitability growth also dipped to the lowest level in four years (38%). Small businesses' current mood is reflected in more limited plans for the next 12 months: fewer than in the last three years are likely to add employees (28%), finance expansion (25%), expand their real estate (23%), make significant changes to products or services (33%), or invest in tools that protect payment systems (40%) and improve efficiency (57%).

"Middle market companies have the scale and capital to grow in today's market. More of them are growth-minded than last year and investing in AI, automation and sophisticated tools to safeguard their operations and customers," said Richard Cabrera, Head of Commercial Banking at Umpqua Bank. "With fewer resources and tighter margins, smaller enterprises have shifted more of their attention to managing the prolonged financial challenges and risks associated with elevated interest rates and inflation."

Middle Market Companies Are Rapidly Embracing Generative AI
Nearly 8 in 10 middle market companies report either moving forward quickly to implement the technology across their organization (42%) or for at least a few specific tasks or functions (36%). They are also prioritizing adding personnel with generative AI experience, with 86% likely to hire for the skillset in the next 12 months. Investing in AI is also a top strategic priority (56%), which ranks first across 10 other investment options. A strong majority believe AI is having, or will have in the next 12 months, a significant impact on profitability (70%), acceleration of new products (69%), productivity (72%) and their competitive advantage (71%).

Small businesses are also adopting generative AI, albeit more slowly, with 28% prioritizing broad implementation or more targeted use across a few tasks.

A Majority of Middle Market Companies Bring Manufacturing and Supply Chains Back to U.S.
While supply chain impacts of the past few years have eased significantly for all businesses, most middle market companies continue looking for new routes and partners. In the last 12 months, 51% have moved manufacturing or supply chains back to the U.S., continuing the onshoring acceleration noted last year. Another 73% with operations abroad are likely to move or shift them elsewhere in the year ahead.

Middle Market Companies Safeguard Against Cyber-Attacks and Real-Time Fraud
Cybersecurity continues to be a top priority for middle market companies: 41% were the victim or target of a cyberattack in the last year. More than 8 in 10 are likely to invest in financial tools to protect payments systems in the next 12 months. More than 6 in 10 now leverage instant payment technology. Of those, 93% have or are planning to implement corresponding safeguards to protect against real-time fraud. Instant payment adoption rates for small businesses stand at 43%, with 66% of these having already implemented or planning to implement corresponding safeguards in the next year.

Small Business Delays, Middle Market Accelerates Decision-Making Ahead of Election
Small and middle market businesses are responding differently to the upcoming congressional and presidential elections in November. Nearly half of middle market companies say they are expediting key decisions before elections, with only 13% delaying them. Meanwhile, small businesses are more likely to delay (23%) than accelerate (14%) key decisions, with more than half indicating no impact on decision-making.

Businesses choosing to delay decisions, regardless of size, are most likely to postpone long-term strategic plans (63%), expansion plans (40%) and hiring (39%).

Methodology
On behalf of Umpqua Bank, DHM Research conducted an online survey of 1,200 owners, executives, and financial decision-makers at U.S. small and middle market businesses during April 22—May 2, 2024. Of middle market respondents, 22% are minority-owned businesses, while 19% of small business respondents are certified woman-owned and 15% minority-owned. The margin of error is: ±2.8%.

About Umpqua Bank 
Umpqua Bank is a subsidiary of Columbia Banking System, Inc. (Nasdaq: COLB), and a premier regional bank in the western U.S., with offices in Oregon, Washington, California, Idaho, Nevada, Utah, Arizona and Colorado. With over $50 billion of assets, Umpqua Bank combines the resources, sophistication and expertise of a national bank with a commitment to deliver superior, personalized service. The bank supports consumers and businesses through a full suite of services, including retail and commercial banking; Small Business Administration lending; institutional and corporate banking; equipment leasing; and wealth management. The bank's corporate headquarters are located in Lake Oswego, Oregon. Learn more at: umpquabank.com.

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SOURCE Umpqua Bank

FAQ

What is the optimism rate of middle market companies according to Umpqua Bank's 2024 Business Barometer?

The optimism rate of middle market companies is 68%, the highest in six years.

How do small businesses feel about the economic outlook in 2024?

Only 29% of small businesses rate the economic outlook as excellent or good.

What percentage of middle market firms expect increased demand for their products or services?

70% of middle market firms expect increased demand for their products or services.

How many small businesses plan to finance expansion in the next 12 months?

Only 25% of small businesses plan to finance expansion in the next 12 months.

What are middle market firms' plans for digitization according to the 2024 Business Barometer?

88% of middle market firms plan to invest in digitization.

How many middle market companies have moved supply chains back to the U.S.?

51% of middle market companies have moved supply chains back to the U.S. in the last 12 months.

What is the current expectation for profitability growth among small businesses?

Only 38% of small businesses expect profitability growth, the lowest level in four years.

How are middle market companies responding to cybersecurity threats?

41% of middle market companies experienced a cyberattack and are prioritizing cybersecurity.