Can You Reconcile the Employment Situation Report With the Low Rate of New Business Creation?

While all sorts of people are doing victory laps over last week’s feeble employment situation report I find myself growing increasingly alarmed at the state of the economy. Read this advisory from John Mauldin as a gauge of why. Incomes have been flat for a decade, GDP (exclusive of government spending) flat for a decade, millions remain unemployed, we’re 18 months into a recovery, and recoveries don’t last forever.

I’m also concerned that birth-death ratio adjustment, a sort of fudge factor, is such a high proportion of total private sector jobs reported. I can’t reconcile that with this from John Robertson of the Atlanta Fed:

The QCEW data also showed that the number of business establishments with payrolls in the United States has remained stuck at around 9 million since late 2007. By comparison, in the early 1990s there were about 6.5 million establishments, a number that rose to close to 8 million in 2000 before peaking at 9 million 2007.

The net creation of business establishments—that is, physical locations for conducting business such as manufacturing plants, retail stores and business offices—has in the past been a key ingredient in job growth in the United States. This growth is driven partly by demand from newly created businesses and by mature firms expanding their footprint by opening additional locations. The demand for physical space is also clearly important to the commercial real estate industry, which has been burdened by elevated vacancy rates in many markets and generally low demand for new space.

Another trend from the QCEW data is striking—the number of employees per establishment is much lower than it used to be.

Doesn’t this also call the birth-death ratio adjustment into serious question? Things just ain’t what they used to be and, consequently, past history is no indicator of future performance.

Established businesses rarely do a lot of new hiring (over the last couple of decades it’s been more the other way around). If new businesses aren’t hiring the way they used to or aren’t being created at all, where will new jobs come from?

7 comments… add one
  • steve

    As I have been looking at the charts, it looks like commercial real estate is one of the primary drags. We still have an inventory to get through.

    Steve

  • sam

    “Incomes have been flat for a decade, ”

    Whose?

    Kevin Drum made an interesting prediction the other day. If the AT&T/Mobile One merger goes through, AT&T’s market share would jump about 30%. Drum predicted that within a year or two, AT&T’s top execs would see their compensation jump about 30%…

    Related, see Joseph E. Stiglitz, Of the 1%, by the 1%, for the 1%.

  • Whose?

    As is clear from the text of my post and the resources to which I’ve linked here, I’m referring to median incomes.

    Another source of irritation to me is the pointless coup counting going on by both political parties. If there’s a single lesson we learned in the debate about taxes a few months ago, it’s that neither party has any appetite for increasing taxes on anybody. The rhetorical position of the Republicans seems to be “no way, no how” while that of the Democrats is “hold fast now (to keep from stalling the recover) but don’t worry, we’ll increase them later”. The net effect is the same.

  • Things just ain’t what they used to be and, consequently, past history is no indicator of future performance.

    I agree, and I wonder quite often if we need to change the metrics we use to measure the economy. I was taught in college that our economy was “consumer driven” but it seems that the reporting in the past years reflects more on how the financial sector is performing than the consumer is faring. I believe the financial sector has become so disconnected from the consumer that any metric that measures the financial sector will have almost no relationship to how the average person is doing economically.

    I know I’ve mentioned this before, but it bears repeating. He may not have actually said it, but the first Henry Ford supposedly paid his employees well so that there would be people who could actually afford to buy the cars his company made. We have done such a “good” job of outsourcing jobs to other countries that there are no jobs here for people to make money to buy anything.

    How does one correct this in a democracy that is evolving into an plutarchy? I don’t know, and I fear it may not be corrected in my lifetime.

  • Drew

    The rhetorical position of the Republicans seems to be “no way, no how” while that of the Democrats is “hold fast now (to keep from stalling the recover) but don’t worry, we’ll increase them later”. ”

    Perhaps because both – despite their politically motivated rhetoric – know the cold, hard truth: if you want less of something, tax it. I’ve said it so many times but it falls on deaf ears: treating income earners like milk cows is an almost depleted asset.

    And so is borrowing…………..

    And so………

  • Icepick

    If there’s a single lesson we learned in the debate about taxes a few months ago, it’s that neither party has any appetite for increasing taxes on anybody.

    More importantly, we’re learning from the current debate that neither side really wants to cut spending in a meaningful way. $60B? That’s not even a good start. Actual cuts will be around $30B, which is probably within the statistical error margin for a budget that size.

    For all the Tea Party scare talk from the Democrats, it is clear to any rational observer that the Tea Party has largely been shunted aside, and has no real influence at the federal level.

    How does one correct this in a democracy that is evolving into an plutarchy?

    The Romans solved a similar problem by appointing dictators for life. Or is that not the answer you’re looking for?

  • Icepick

    Ah, I wrote not having read the day’s news. (I’m still catching up after the power outages last week – we had what amounted to a minor hurricane in Florida last week.)

    I see that Paul Ryan is talking of a proposal to cut $4 trillion from the budget for the next ten years. Now THAT would be a good start. It still isn’t enough, but it would be a good start.

Leave a Comment