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Thursday, January 23, 2014

Small Business Is Dying

Does anyone really take the official U.S. unemployment figure seriously? My bet is the monthly number, as reported by the Bureau of Labor Statistics, will no longer be trusted by media, economists, politicians, and investors -- not to mention the public.

We were recently told by the Labor Department that unemployment fell to 6.7% in December from 7% in November. But they also told us that the economy created only 74,000 new jobs in December, far below the 200,000 new jobs economists had expected.

The official unemployment rate is an inaccurate mess, because it doesn’t count people who have quit looking for work. And an unemployment rate of 6.7% is not only horribly misleading, but now a cruel misrepresentation of the millions of unemployed and underemployed Americans who are growing discouraged and feel emotionally destroyed.

We need new metrics real fast, and Gallup has developed one. It’s called Payroll-to-Population (P2P), and it’s a very clear metric with no messiness or complicated formulas. Gallup’s P2P simply represents the percent of adults in full-time jobs with a paycheck as a percentage of the total U.S. adult population. P2P answers the most pressing question of the day: What percent of American adults have a full-time job?

While the federal government touted an improved unemployment rate, Gallup’s P2P rate fell to 42.9% in December, from 43.7% in November. The current rate is the lowest Gallup has measured since March 2011.

I’m not optimistic that this number is going to substantially improve anytime soon -- not until the country’s leadership understands the severity of our jobs problem and understands the source of true, organic job creation -- which is new business startups.

On that front, the news is deadly. According to the U.S. Census Bureau, the total number of new business startups and business closures per year -- the birth and death rates of American companies -- have just crossed for the first time since the measurement began. Here, I am referring to employer businesses, those with one or more employees, the real engines of economic growth. Four hundred thousand new businesses are now being born annually nationwide, while 470,000 are dying annually nationwide.

The deaths of businesses now outnumber the births of businesses.

Up to 2008, startups outpaced business failures by about 100,000 per year. But in the past six years, that number turned upside down. As you read this, we are at minus 70,000 in terms of business survival. (The data are very slow coming out of the U.S. Census Bureau, via the Small Business Administration, so it lags real time by two years.)

The real job market, with organically created jobs from the hearts and minds of American small- business people -- American entrepreneurs -- is now in critical condition. One could conclude that America’s free enterprise spirit is dying or, at best, is very sick.

Leaders should take new business startups and entrepreneurship very seriously: 50% of all jobs are in small businesses and approximately 65% of all new good jobs are created by them, according to the Small Business Administration. Gallup is sure taking this seriously. We just launched our Entrepreneurial StrengthsFinder assessment, which aims to help America -- and the world -- find and develop our best and most talented business builders.

American leadership has a clear choice here. It can continue to tout dishonest unemployment figures while coming up with no real solutions to the jobs crisis that now afflicts millions of Americans. Or it can base policies on honest employment figures and begin attacking the jobs problem by rekindling the country’s spirit -- the spirit of free enterprise.

8 comments:

Anonymous said...
January 27, 2014 at 2:45 PM  

Jim

Thank you for writing this clear, candid, and much needed description and call to action.

Craig

Anonymous said...
January 29, 2014 at 11:13 PM  

I used to run a small business that did very well in the agricultural industry. I really enjoyed every day driving away to the next job. Employees were happy too. I paid for health insurance for their families and started them with two weeks paid vacation. But around 2005 as taxes went up, and fees went up, and health insurance rates soared, I had to cut back and finally decided I was making more money as a sole proprietor. The government had killed my entrepreneurial spirit and with it good paying jobs. Who would want to open a business in todays' anti-business environment ?

Anonymous said...
January 31, 2014 at 1:06 AM  

I closed my small business January 2014. I had opened it 2009. Though I owned the business, in that time, I couldn't make a living and wound up on Food Stamps. I saw for myself that, even though a business starts and is counted as something worthwhile in the over-all statistics, in reality, it may just be a number and nothing more. But, now it's going to be a number on the opposite side of the ledger. One less employed person, one less business.

Anonymous said...
February 5, 2014 at 9:52 AM  

As a UK based Behavioural Scientist working with companies I don't believe our figures either. We have several million adults not working who are not classed as 'unemployed' - they are claiming Jobseekers Allowance or on part-time/zero-hours contracts (entirely different things of course).

Would really like to see Gallup P2P metric applied in the UK for comparison with our official 7.1% unemployment rate.

Anonymous said...
February 14, 2014 at 4:26 AM  

The P2P indicator might exclude the freelancers, consultants and other contract workers/professionals. What could be the percentage of such people?

Anonymous said...
February 18, 2014 at 5:15 PM  

I started a new business in 2009 after my job was sent to India. It took 2 years to develop a product, a good product. The economy has not turned, so while few buy, it is not enough to make a living. Shortly there will be one less business as I can't continue to justify the expenditure of time, energy and funds.

Sign me: Now Working Part-Time

Judy Anne Cavey said...
February 21, 2014 at 1:28 PM  

Small business health and entrepreneurial enthusiasm seems to thrive in California's "Silicon Valley" (Santa Clara Valley). Certain opportunities depend on the region.

Additionally, since the Recession began, some older workers put out to pasture have begun to work for themselves. Certain grads, finding it difficult to enter the job market, have done the same.

I agree, we need to include job seekers who have dropped from the radar: long-term unemployed. It's paramount to include everyone who lost a job, otherwise, we don't have a clear picture of where we really are right now.

handytarife für Schüler said...
September 13, 2014 at 6:02 AM  

Does anyone really take the official U.S. unemployment figure seriously? My bet is the monthly number, Since the recession ended, small businesses have started to rebound. So are small businesses dying despite our professed love for them? like as a handytarife für Schüler .. thanks

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