9/19/2023 4:00:00 PM | Newsroom

Umpqua Bank 2023 Business Barometer: Optimism, Expectations for Revenue and Profitability Rise Despite Lingering Economic Concerns

Business leaders focused on efficiency, reducing uncertainty, protecting working capital

  • 74% focused on digitization to become more efficient
  • 60% investing in tools to protect payments systems
  • 57% of middle market businesses likely to bring supply chains back to U.S.
  • Cybersecurity surpasses talent issues as a top middle market company concern

Umpqua Bank, a subsidiary of Columbia Banking System Inc. (Nasdaq: COLB), today announced the findings of its annual Business Barometer ― an in-depth study of the mood, mindset, and strategic priorities of small and middle market businesses across the U.S. While concerns about the direction of the economy persist, business optimism is rising, and expectations for revenue and profitability are increasing. The study also found a growing appetite among businesses to make prudent investments that will help them become more efficient and competitive.

“Small and middle market businesses across the country continue to show why they are the backbone of the U.S. economy,” said Tory Nixon, Umpqua’s President of Commercial Banking. “While economic concerns linger, they’re responding to the uncertainty with growing optimism and confidence in their ability to adapt and move forward. Businesses are planning strategic moves they believe will help them become more efficient, more profitable, and ready for what’s ahead.”

With positivity about the current state of the economy (41% excellent/good), and expectations for increased revenue (58%) and profitability (51%) hovering around or exceeding five-year highs, businesses are noticeably more likely than last year to take planned action to achieve their goals in the next 12 months. This is especially true of middle market businesses, which are more likely to invest in digitization for efficiency (87%) and tools to protect payments systems (74%), make significant changes to products and services (65%), expand their commercial real estate footprint (57%), finance expansion (49%), or acquire another business (40%).

Although businesses are cautiously more optimistic about the economy than in 2022, a majority believe an economic downturn is more likely now than they did at the beginning of the year. In order, all businesses surveyed rate inflation, a potential recession, and high interest rates as their top three concerns.

Other notable findings from this year’s Business Barometer include the following:

Key Investments Target Efficiency over Aggressive Growth
Businesses are focused on becoming more efficient in the year ahead. Outside of increasing revenue and sales, improving operational efficiency ranks as the most “crucial” factor to success. Nearly 3 in 4 enterprises plan to invest in digitizing new areas of their business to improve efficiency. Middle market companies are especially focused on increasing efficiencies through automation, which ranks as the “most important” action to manage profitability in the next 12 months, as well as a top investment priority.

The majority of those surveyed, including 65% of middle market businesses, are likely to make significant changes to products and services this year, with the goal of increasing profitability as a key motivator. To protect working capital, 60% of businesses are also likely to invest in financial tools to protect their payments systems, including 74% of middle market companies.

“Leaders are less focused on wholesale changes to their business right now and more focused on shoring up their fundamentals,” said Umpqua’s Head of Middle Market Banking Richard Cabrera. “Those enterprises with a sound business model, lean and efficient operations, and strong financial management will be well-positioned over the next 12-18 months for continued success and future growth.”

Businesses in West More Optimistic Right Now than Other Regions
The West, with closer geographic ties to Asia, a vast agriculture industry, and a leading technology hub, records significantly higher marks of optimism than other regions. This year, 57% of business respondents based in the West rate the economic conditions in the U.S. as either excellent or good compared to 33% in the Midwest, 39% in the South, and 36% in the Northeast. When asked whether they anticipate that overall economic conditions in the U.S. will improve in the next 12 months, 46% of businesses in the West believe economic conditions will improve, 33% in the Midwest, 39% in the South, and 34% in the Northeast.

This higher level of optimism is underscored by the fact that 42% of businesses in the West say they are likely to hire and increase staffing levels in the next 12 months. This compares to 33% of businesses in the Midwest, 39% and 36% of businesses in the South and Northeast, respectively.

Cybersecurity Now Top Non-Macroeconomic Concern for Middle Market Businesses, Ahead of Talent Issues
Of those surveyed, 22% of middle market leaders see addressing cybersecurity as crucial to their success in the next year. Overall, they also rank cybersecurity as the top concern after inflation and recession—ahead of talent acquisition and retention this year. In the past 12 months, 21% of middle market businesses surveyed indicate they have been the target of cyber-related fraud and ransomware attacks.

Supply Chain Boomerang: Nealy Half of Middle Market Business Bring Supply Chains Back to U.S.
Close to half of middle market businesses (49%) surveyed have brought supply chains or manufacturing back to the U.S. in the past 12 months. Another 57% indicate they will likely continue that trend in the year ahead. When asked why, the top three reasons are: (21%) more profitable, (11%) increased control, and (11%) best opportunity to grow business.

Commercial Real Estate Holds Steady as Businesses Eye Opportunities
Appetite for expanding commercial real estate is holding steady. Middle market companies are more likely than last year to consider expanding their real estate footprints in the next 12 months (2023: 57% and 2022: 39%). Among small business owners, 35% indicate they are likely to invest in expanding their real estate footprints.

Businesses Plan to Continue Hybrid Options for Workers
For industries not constrained by in-person services, hybrid schedules remain the norm. More than half of all businesses surveyed offer consistent hybrid work options for employees, including 1 in 3 allowing remote days most of the week, and 1 in 5 allowing a full five remote workdays. While a solid majority (55%) plan to maintain their current approach over the next year, 22% actually plan to expand remote work options, including 28% of middle market businesses, compared to 17% planning to scale back.

On behalf of Umpqua Bank, DHM Research conducted an online survey of 1250 owners, executives, and financial decision-makers of American small and middle market companies during July 27 to August 8, 2023. 22% of middle market respondents are minority-owned while 23% of small business respondents are certified woman-owned and 17% minority-owned. The margin of error is: ±2.8%.