Business Employment Dynamics: The Latest Grim News

This past week has been chock full of depressing economic news in terms of new job creation and economic growth.  New data released by the Bureau of Labor Statistics (BLS) shows that the state of the US small business sector is equally grim.  As the chart below shows, new business starts went south beginning in 2008, and have continued downward ever since.

The drop-off in new business establishments is not the only piece of bad news.  New jobs created by these firms have also dropped.  Finally, the BLS data show that business churn rates are moving in the wrong direction. In general, business churn can be a positive thing if new, more productive, firms are replacing their less productive predecessors.  But, today, business deaths outpace new business starts by a large margin. In fact, the decline in new business starts is the steepest since the early 1990s. 

There’s not much good news in these reports.  One exception is that surviving firms of all sizes seem to be recovering and getting back to their 2007 employment levels.  The uptick has been fastest among large firms, i.e., those with more than 500 employees.   One other potential positive angle:  the BLS data does not track sole-proprietors or firms that work in the “1099 economy.”  It only tracks firms with formal employees.   Perhaps we can count on this hidden part of the entrepreneurial economy to play a major role in our recovery.

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