Q1 2026 RSM US Middle Market Business Index

These outlays should bolster productivity, which will help firms meet demand amid a solid economic expansion while keeping control of labor costs.

While anticipated increases in net earnings and revenues were the primary impetus for survey respondents’ improved outlook overall in the coming months, executives remained somewhat skeptical about the current condition of the American economy.

In the current quarter, 42% of survey participants indicated an improvement in the economy and 53% said they expect it to improve over the next six months.

The RSM GDP Nowcast pointed to economic growth of 4.5% in late February, though we think that figure will cool to 3% by the end of the first quarter as more data accounts for the reopening of the government following a long shutdown last fall.

The net earnings and revenues data underscores the impact of what the U.S. Treasury estimates could be a cash infusion of as much as $150 billion into the pocketbooks of consumers and businesses.

On net earnings, 50% of survey participants indicated improvement in the current quarter and 63% expect an increase over the next six months.

The narrative on revenues is similar, with 52% of respondents reporting improvement now and 68% anticipating higher revenues over the next 180 days.

Those increases should raise productivity-enhancing capital expenditures, with 64% of executives saying they plan to step up such investments in the coming months, compared to 52% who increased expenditures in the first quarter.

The major takeaway from the first-quarter survey is the potential for a virtuous cycle of reinvestment of improved earnings and revenues back into middle market firms following the implementation of federal tax cuts.

The data shows that midsize firms expect to increase hiring and compensation in the aftermath of that investment.

Not surprisingly, only 44% of firms indicated they increased hiring in the first quarter, which affirms our low-fire, low-hire forecast for the American labor force. That figure rose to 55% when executives were asked about their outlook for the next six months.

Our interpretation of this response is that the installation of productivity-enhancing technology will be followed by a period of more aggressive hiring, and higher compensation, as this technology is deployed.

More than half of the executives surveyed, or 53%, indicated they increased compensation this quarter, and 62% said that they would do so going forward.

From our vantage point, long-term demographic shifts and tighter immigration constraints are the context in which the labor market remains relatively tight as the economy remains at full employment.

The choice between increasing compensation and increasing investments in labor-saving technology, especially early in the artificial intelligence era, will play a much larger role in the overall U.S. economic narrative.

For middle market firms that are increasingly integrating sophisticated technology, these investments should support solid-to-strong late-cycle expansion.

For the first time in a while, the inflation outlook appears to have stabilized, albeit at elevated levels, with prices paid remaining relatively unchanged in the current quarter and anticipated to hold steady over the next six months.

A majority of survey participants, or 56%, noted that they expected to ramp up inventory accumulation over the next six months, a finding typical around midyear.

Early last year, firms pulled forward purchases and built up inventories to avoid tariffs. Now that businesses have exhausted their stocks, we anticipate something of a mini price shock as firms rebuild their inventories, which will put expectations of stable pricing to the test.

We estimate that inflation, as measured by the personal consumption expenditures index, used by the Federal Reserve to guide policy, will remain in the 2.7% to 3% range, with a move above the upper boundary early this year.