The SBA Office of Advocacy has issued an update of their Small Business FAQ. There are some worrisome changes in some of the statistics.
The small business job engine is sputtering. For several years the SBA has estimated that about 78% of new jobs in the U.S. have been created by small businesses over the past several years. They now estimate this figure to be about 64%. I would predict an even further plummet over the next two years. These are running averages, so it takes time for the numbers to shift. However, I must admit that this sudden drop took my breath away when I read it.
The small business foundation of the economy is weakening. The SBA estimates that in 2007 the small business birth rate is about 627,200, which is the lowest level in the past five years. I am worried what the 2009 figures will show, although this number includes self-employed. That number may be up due to the high unemployment rate. But, for the first time in the past several years, business closure rates and business bankruptcy rates exceed the business birth rate. This is alarming. We also need to keep our eye on the Census estimate of the number of small business that have employees. It was at 6.0 million as of 2007 estimates (if the future estimates really will have any credibility with the new policy that is moving the Census Bureau directly under the control of the White House).
And what about survival rates? The jury is out on this. We will have to wait until 2011 to have any meaningful data on business survival rates. The baseline going into this economic downturn — that may be turning into a full fledged small business collapse thanks to the policies of the current President and his predecessor — is 69% survival rate two years out and 51% survival rate five years out. Again, we have to rely on the Census for these estimates, so not sure how they will spin the future statistics.
Interesting Analysis, it’s a surprise to see the plummet decrease of Small Businesses, when it’s expected to increase especially during the Economic Recession.
These numbers surprise me and are pretty ominous.
But hey, at least we’ll all have healthcare, right? (HA…)
Jeff,
yet more and more people set up a business because of the economic climate.
Some people will put their pension, or what is left of it, on the line.
There seems to be a collective attempt, by the political establishment, to talk ourselves happy.
Great article, thanks.
VB, Stefan
I agree with RedHotFranchises, in that in a recessionary period (as we are currently experiencing) when jobs are scarce and unemployment is high, that is usually the time that new businesses are formed and the entrepreneurial spirit is most alive. It also costs less nowadays to start a new business (thank you Internet).