The RSM U.S. Middle Market Business Index (MMBI), presented by RSM and the U.S. Chamber of Commerce, decreased by more than 21 points to 88.4 in Q2/20, capturing the severe shocks to the economy resulting from the COVID-19 pandemic.

The April reading is a drop from March’s 109.8 and the first quarter final reading of 131.4. RSM began measuring the MMBI monthly in March 2020 to capture the impact of the COVID-19 pandemic. Middle market business conditions have suffered significant declines since the onset of the pandemic as the economy has effectively shut down following the combination of self-imposed social distancing by the public and shelter-in-place guidance issued by governments at the federal, state and local levels.

The decline in the index indicates middle market executives see these economic shocks as large and pervasive, and they do not anticipate significant improvement in the economy, earnings or revenues over the next six months. At the time of the survey, approximately 83% of respondents indicated a general decline in economic conditions, with 61% noting a decline in gross revenues and 59% reporting a decline in net earnings during that time. The future outlooks are similarly grim, with 51% of respondents expecting a continued decline in the overall economy during the next six months and 50% expecting to see a decline in revenue and net earnings.

“The shocks that cascaded through the American economy due to the COVID-19 pandemic struck a blow to the heart of the real economy in April,” Joe Brusuelas, chief economist for RSM, said. “Our current baseline forecast of ‘depression-like shock, no depression’ indicates the economy is likely to avoid the major risk of the moment: deflation eating away at individual wages, increasing the U.S. household and commercial debt overhang and causing large declines in industrial output and economic activity. However, should wages decline over the next six months, the risks of a much more pronounced decline in the economy increase.”

“Businesses have justifiable concerns over what the next few months will look like,” Neil Bradley, executive vice president and chief policy officer of the U.S. Chamber of Commerce, said. “It’s fair to say that expectations for a rebound in 2020 will differ based on the unprecedented challenges each business has faced because of the economic crisis caused by the coronavirus pandemic. This makes finding a path to returning to work and reopening even more important to getting our economy back on track. Providing consistent public health guidance and a liability safe harbor for businesses is necessary as they look to reopen and operate in a way that is safe and sustainable for their employees and customers.”

The COVID-19 pandemic has had an outsized impact on the middle market, with smaller midsize companies bearing the brunt of the pressure while experiencing declining revenue and having to adjust to new ways of operating.

Smaller middle market businesses sought significantly higher rates of lending relief than their larger counterparts with more than half of executives at companies with annual sales of $10 million to $50 million indicating they sought special financing to ensure liquidity during the pandemic, while 43% said they plan to do so in the next six months. Comparatively, 34% of larger middle market companies (with revenues of $50 million to $1 billion) sought this type of financing during the same time period, and only 25% expect to do so in the next six months. Middle market businesses reported that access to capital has become more difficult with 33% sharing that borrowing conditions had tightened, perhaps reflecting difficulty in accessing the Small Business Administration’s Paycheck Protection Program and the delayed launch of the Treasury/Fed’s Main Street Lending Program.

The pandemic also has changed the way middle market businesses operate, requiring them to expand remote working capabilities, close locations, reduce hours or employees and make tactical moves to prevent the spread of the virus. Ninety percent of middle market executives reported some employees were working off-site as a result of the pandemic. Additionally, at least a third of respondents said they had reduced the hours of hourly and salaried employees, and had furloughed at least some hourly workers. However, they were able to keep the majority of jobs, as only 19% of middle market businesses laid off hourly employees and just 15% reduced salaried staff.

The survey data that informs the index reading was gathered between April 8 and April 23.

RSM is the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 41,000 people in 116 countries.