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Can the Middle Market Have Its Own Predictive Index?

Can the Middle Market Have Its Own Predictive Index?

Hal Conick

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The middle market has historically been an opaque market. Now, a handful of organizations are trying to fix its fogginess by measuring changes over time with indices and indicators.

Thomas Stewart recalls an interesting predictive benchmark he once heard about Coca-Cola: When soda fountain sales rose, so would the economy. It’s not surprising that Coca-Cola would use soda fountain sales as a yardstick for the economy—the company owns roughly 42% of the U.S. carbonated soft drink market. However, Stewart, the executive director of the National Center for the Middle Market, says other organizations can find their own valuable benchmarks externally in market indices or indicators.

An index is a sampling of a market thought to be representative of the whole. All indices measure different data, businesses and markets. The two most disparate indices may be the Dow Jones Industrial Average and the S&P 500 Index​, mammoths with different colored fur. The Dow is a price-weighted average of 30 large stocks featuring giant corporations such as Apple and Boeing. The S&P focuses on the stocks issued by 500 large companies with market capitalizations of at least $6.1 billion. Despite sample-size differences, both are trusted and used as indicators of U.S. economic growth. 

Small businesses have indices, too, including Wells Fargo’s Small Business Index and the National Federation of Independent Business’ Small Business Economic Trends. All indices track performance changes over time. The most useful indices can serve as a litmus test for a company’s chunk of the economy.


For example, a home-improvement retailer like Home Depot would likely find Coca-Cola’s benchmark useless, but it may find value in a benchmark like the S&P Homebuilders Select Industry Index. An increase in this index could mean an incoming economic boom, while a dip may mean an impending economic tumble.

Measuring the Middle

The range of companies in the middle market is dispersive. Middle market companies can manifest in industries as dissimilar as retail, manufacturing, legal services or computer equipment. Also, despite the name “middle market,” the sector comprises a large chunk of the economy. The National Center for the Middle Market has reported that the middle market employs 47.9 million Americans and composes roughly one-third of the private sector’s GDP. Private companies don’t often report exact sales and revenue numbers, opting instead to give a revenue range. The variety of industries in the middle market makes it hard to take a well-proportioned snapshot of the market as the S&P 500 can do among large businesses.

These factors converge to make measuring the middle market akin to guessing the number of jelly beans in a jar. However, multiple organizations are now trying to clearly measure the market and give executives a predictive benchmark.

NCMM publishes the Middle Market Indicator, surveying 1,000 middle market C-suite executives and tracking revenue growth, employment growth and confidence levels. Stewart says he dreams that the report’s short-term index will soon have predictive value. “The holy grail for an index is to create something that actually becomes leading,” Stewart says. “I don’t know that anybody has that. We are hopeful, but it’s a tricky business.” Still, NCMM’s index, which is within its Middle Market Indicator, is only two years old and not yet predictive—it’s hard to know if it ever will be, Stewart says, but the NCMM is currently testing, laying new numbers over the old ones to see how they match up.

A pair of University of Chicago professors are also hopeful that their new index can make the middle market less opaque. Lincoln International, a middle market investment bank, recruited Steve Kaplan, professor of finance and entrepreneurship at the University of Chicago Booth School of Business, and Mike Minnis, an associate professor of accounting at Booth, to create a quarterly index using data from the bank’s portfolio. “They thought they had better data than other folks who were trying to measure the middle market,” Kaplan said. “That’s why Lincoln was interested, and that’s why we worked on it. We could see there was value there.” 

Each quarter, Kaplan and Minnis construct an index using values from a subsection of the 1,200 companies within Lincoln’s portfolio. They believe that the variety in this index makes it more like public stock indices (like the S&P 500) than other middle market indices. Even so, clear measurement in the middle market is still hard to perfect: Kaplan and Minnis acknowledge that this index has fewer tech and financial companies than the overall economy. 

In addition to NCMM’s and Lincoln’s reports, other companies have tried to create their own middle market benchmarks. These include the Golub Capital Middle Market Report, the American Express Middle Market Power Index and RSM’s U.S. Middle Market Business Index conducted with the U.S. Chamber of Commerce. Each of these five indices uses its own set of data: RSM’s and NCMM’s reports are based on surveys of middle market executives. Lincoln’s report is a smattering of valuation data from middle market organizations. Golub’s report examines 150 privately owned companies in the Golub Capital loan portfolio. American Express’ report examines a six-year period of Dun & Bradstreet’s commercial databases. Although none can perfectly predict the vicissitudes of the middle market, all aim to find a stable measure to give middle market executives a focused vision into their ever-opaque industry.

Why Read Indices?

Stewart, Kaplan and Minnis all agree that executives can find tidbits of information in indices and indicators that could serve as benchmarks for their company, just as Coca-Cola executives found fountain drink sales to be their predictive benchmark.

Stewart says niche indices—think Home Depot looking at the homebuilder index, or perhaps a car dealer reading Manheim’s Used Vehicle Value Index—can alert marketers to whether customers are expansive and ready to spend or downtrodden and too nervous to open their wallets. This may give marketers a modicum of empirical evidence necessary to decide what the tone and style of their campaigns should be.

“You might think about where you’re going to put your marketing, what kind of marketing to do and what message you’re going to send,” Stewart says. “I suppose all of us could and should be informed by where your audience thinks the economy is going.”

Hal Conick is a freelance writer for the AMA’s magazines and e-newsletters. He can be reached at or on Twitter at @HalConick.