Start-Up Activity Lowest On Record

LOWEST START-UP RATE ON RECORD AS JOBS, FRAGILE ECONOMY DETER ENTREPRENEURISM

Start-up activity among unemployed managers and executives in the first half of 2011 fell to its lowest level in the history of tracking, according to new survey results from outplacement consultancy Challenger, Gray & Christmas, Inc.  The survey results reflect the harsh conditions that currently exist for would-be entrepreneurs, whose biggest obstacle may be securing the funds to undertake such an endeavor.

Through the first six months of 2011, an average of just 3.3 percent of job seekers decided to start their own business.  That was down from the previous record-low of 3.7 percent averaged over the first two quarters of 2010.  In the second quarter of 2011 the start-up rate was even lower, with only 2.5 percent of job seekers launching their own firms.

The Challenger survey is conducted quarterly among approximately 3,000 job seekers reentering the workforce in a variety of industries and occupations across the country.  While all career levels are represented, the survey pool tends to skew toward the more experienced, managerial and executive level job seeker.

The 2.5 percent of job seekers starting businesses in the second quarter is the lowest level of start-up activity ever recorded by Challenger in survey records going back to 1986.  Even in 2001, amid the dot.com collapse that was particular devastating to recent start-ups, entrepreneurship was still pursued, on average, by nearly 8.0 percent of job seekers every quarter.  Over the past six quarters, the average start-up rate is half the 2001 average at 4.2 percent.

“We are slowly coming out of the deepest recession this country has seen in decades.  While some large and medium-sized companies are finally beginning to see the effects of an upturn, conditions are still very tough for small businesses and would-be entrepreneurs,” saidJohn A. Challenger, chief executive officer of Challenger, Gray & Christmas.

“Lending is still extremely tight and for many of those wanting to start a business, funding the venture with credit cards or through a home equity loan are no longer viable options.  Then there is the difficulty of finding customers.  Even medium and large companies are having a hard time doing this, as consumers and businesses continue to keep a lid on spending,” he added.

It is not just job seekers who are reluctant to start businesses; self-employment, in general, has declined significantly since the beginning of the recession, according to the latest non-seasonally adjusted data from the United States Bureau of Labor Statistics.  As of July, there were 8.6 million self-employed Americans, down from a pre-recession peak of nearly 10 million in June 2007.

The number of self-employed has continued to drop throughout the recovery, which began in July 2009, according to the National Bureau of Economic Research.  The current self-employment level of 8.6 million is down 4.4 percent from 9.0 million in July 2009.

“Another reason start-up activity may be falling is that hiring is improving just enough to keep people on a more traditional employment path,” said Challenger.

While net employment gains have been relatively small over the last 18 months due to continued layoffs, retirements and other separations, hiring levels are actually quite strong.  The Bureau of Labor Statistics’ latest job openings and labor turnover survey reveals that employers hired nearly 12.2 million new workers during the second quarter.

“When the recovery reaches the point when employers begin hiring, but the economy remains relatively fragile, we tend to see a drop in entrepreneurism as job seekers start to see success in their searches.  As the economy continues to gain strength, start-up activity may begin to grow again, as conditions for such ventures become more inviting,” noted Challenger.

 

# # #

PERCENTAGE OF JOB SEEKERS STARTING BUSINESS

By Quarter, 2000 – 2011

 

Q1

Q2

Q3

Q4

Annual Average

2000

9.3%

7.8%

7.7%

3.5%

7.1%

2001

7.8%

8.0%

6.5%

9.0%

7.8%

2002

11.5%

11.2%

10.6%

5.2%

9.6%

2003

5.7%

7.1%

7.8%

6.7%

6.8%

2004

10.1%

9.9%

9.8%

6.5%

9.1%

2005

9.2%

13.1%

7.9%

6.6%

9.2%

2006

8.2%

6.2%

7.0%

9.2%

7.7%

2007

10.6%

6.0%

10.1%

5.7%

8.1%

2008

7.2%

4.3%

6.1%

2.7%

5.1%

2009

6.5%

8.7%

11.8%

7.3%

8.6%

2010

3.4%

3.9%

7.5%

3.9%

4.7%

2011

4.1%

2.5%

3.3%

Source: Challenger, Gray & Christmas, In

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19 thoughts on “Start-Up Activity Lowest On Record

  1. Pingback: Jobless starting businesses at 11-year low - Jan Norman on Small Business - The Orange County Register

  2. This is discouraging news. That entrepreneurial activity is so low implies that too many Americans have given up the hope of bettering themselves through self employment. With net employment at new lows and the salaries of most non-managerial workers stagnant, our nation cannot recover economically until we regain the belief that investment in our own ideas is the best path to personal, and national, prosperity.

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