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To understand what impact current macroeconomic conditions and government policies have on the business environment, KeyBank surveyed 400 owners and executives of middle market businesses1 — defined as those in the $10 million to $2 billion range.

Executives are feeling trepidation about what’s ahead

Warning bells are ringing for many middle market business leaders. Despite the overall strength of the economy, the federal government’s trade policy continues to send ripples of tension throughout the private sector. Middle market businesses in particular are being riled by import and export tariffs, pointedly more so than last year at this time.

Meanwhile, economic growth is slowing after a record-long expansion. The gross domestic product growth rate hovered at an annual rate of 1.9% for the third quarter,2 falling short of the federal administration’s 3% goal. The data shows that while consumer spending remains robust, corporations are sharply pulling back.

“We are starting to see a general unease in the marketplace as our customers are consistently being bombarded with talk of trade wars, economic recession and political turmoil both home and abroad. This translates to a lack of confidence and a reduction in investment.”

– Peter Bullen, Executive Vice President, Key Equipment Finance

Under pressure: U.S. trade policy in 2019

In an attempt to shrink a trade imbalance, curb intellectual property theft, and address other factors, the U.S. began imposing tariffs on China last year.3 In September 2019 the trade war heightened as a 15% tariff on $125B in Chinese imports was met with retaliatory tariffs from China on $75 billion in U.S. goods.4 Then, in October 2019, the U.S. broadened the trade war, setting tariffs on up to $7.5 billion of European goods including aircraft, food, and beverages.5 With more tariffs set to hit on December 15, American businesses are bracing for impact.

“Tariffs create unnecessary inflation and uncertainty. People don’t care as much if the effects are good or bad—they just want more certainty.”

– Phil Gibbs, Director, Equity Research Analysis, KeyBanc Capital Markets Inc.

Tariffs, volatility top the list of economic concerns

Tariffs topped the list of factors causing a poor outlook of the U.S. economy, according to two-thirds of respondents who had a good, fair or poor outlook of the economy. Following closely behind are the potential for an economic recession (63%), changes in trade agreements (62%), and a volatile political landscape (55%). These closely linked concerns suggest that executives are worried about macroeconomic factors that are outside their control.

When asked if tariffs are hurting their business, the answer is a resounding yes. In September 2019 nearly half of middle market leaders reported negative impacts from tariffs. At the same time last year, only 34% reported negative impact.

Tariffs Impact Compared to 2018

The sectors most affected by tariffs are automotive, technology, and agriculture. While the U.S. steel industry has benefited from the 25% tariff on steel imports and 10% tariff on aluminum, other industries that rely on those raw materials to build cars, housing, appliances, and/or infrastructure are suffering from the higher costs.

Negative Tariff Impacts

Middle market businesses curb investment, cut costs

Middle market companies are beginning to curtail investment. Commerce Department data in October showed business investment has declined for six straight months, falling 3% in the third quarter, the largest drop since the end of 2015.6 Supporting these figures, 69% of the surveyed middle market executives that are experiencing an adverse effect from the federal trade policy and the resulting economic uncertainty say they’ve reduced their business investment plans.

Anticipated Business Investment Reduction in 2018 vs Actual Business Investment Reduction in 2019

Taking a look at where firms are reducing investment, equipment purchases (61% of respondents), staffing expansions (43%), and facility renovations (43%) are bearing the brunt. Middle market business owners appear to be hunkering down for a recession by slowing expansion in favor of more critical operating needs.

In addition to restraining investment, firms are also implementing other cost-savings measures. A large share of the businesses surveyed have raised prices, reduced profit margins, or cut costs by using cheaper materials or components, trimming overhead, or reducing staffing. And, as they did in 2018, nearly half of those negatively impacted by tariffs have passed the additional costs of tariffs along to their customers rather than absorbing them.

Negative Tariff Reactions

Recession warning bells are ringing

The economic expansion has surpassed 120 months—the longest on record—and many business owners fear the aging growth cycle, inverted yield curve, and rising federal deficit are signs of an impending downturn.

Executives also anticipate that consumer trends will soon turn, affecting corporate profitability. That’s because high consumer spending has been helping shore up economic growth7 even amidst declining business confidence and industry and government spending.

But now, consumers are beginning to feel the pinch of new tariffs targeting goods such as consumer electronics and specialty imported foods. While consumer spending is expected to stay high through the holiday season, consumer confidence is gradually declining after reaching soaring levels a year ago.8 A commensurate decline in consumer spending could push the economy into a recession.

“It’s hard to know how much of the global slowdown that we’ve seen in the last 12 months is due to the tariffs and trade wars versus just normal, cyclical factors.”

– Phil Gibbs, Director, Equity Research Analysis, KeyBanc Capital Markets Inc.

With all those issues at play, over half of middle market executives expect a downturn to occur within the next year. Nearly two-thirds anticipate it to have a negative or very negative impact. As a result, forward-looking middle market business leaders are now focusing on ways to improve operations and identify new revenue streams.

What steps will businesses take to deal with a downturn?

Through uncertainty, KeyBank can help guide growth

Business sentiment may be waning, but middle market owners and executives still have plenty of opportunity to set their businesses up for success. Whether your firm is interested in exploring mergers and acquisitions, payment automation, financing equipment, or changing your balance of liquid and long-term assets, KeyBank delivers everything from unique capital markets and advisory capabilities to customized working capital management capabilities and a variety of on- and off-balance sheet solutions.

No matter your plans, KeyBank makes it a point to understand your business, your goals, and your industry to provide you with value-added strategic ideas, insight, and products/services to help your business adjust to changing economic conditions and regulations.

For more information, contact a regional executive.


This sample group represents the opinions of respondents who are specifically business owners, C-suite professionals, or have the title of SVP, VP, controller or treasurer. 400 interviews were conducted online from Sept. 3 to Sept. 17, 2019.


New York Times “Economy Grew at 1.9% Rate in Quarter, Hit by Trade Fight and Global Weakness”


The Guardian “Here are the reasons for Trump’s economic war with China”


CNBC “China will retaliate with tariffs on $75 billion more of US goods and resume auto tariffs”


Bloomberg “U.S. to Put Tariffs on European Planes, Whiskey, Cheese After WTO Ruling”


Washington Post “Economy slows, Fed hits brakes, and uncertainty clouds Washington’s next steps” October 30, 2019


The Economist “Corporate America’s Confidence and Profits Are Sagging” 10/23/19


NBC News “Consumer confidence falls for third straight month, as trade war continues.” October 29, 2019

"KeyBank Middle Market Business Sentiment Survey" September 2019.


Business Owners/Executives—This sample group represents the opinions of respondents who are specifically business owners, C-suite professionals, or have the title of SVP, VP, controller or treasurer ($10M to under $2B revenues).

This document is designed to provide general information only and is not comprehensive nor is it legal advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought. KeyBank does not make any warranties regarding the results obtained from the use of this information. is a federally registered service mark of KeyCorp.

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