Start-Up Activity Increased 31 Percent in 2013

The percentage of former managers and executives starting their own business rose in 2013 to its highest level since the end of the recession, according to a new survey.  The increase in entrepreneurial activity among displaced professionals belies recent trends in the wider labor force where the number of self-employed Americans declined last year.

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2011 Saw Lowest Start-Up Rate On Record

Start-up activity among unemployed managers and executives in the second half of 2011 failed to rebound from the record lows recorded over the first two quarters of the year, according to new survey results from outplacement consultancy Challenger, Gray & Christmas, Inc.

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Over the last two quarters of 2011, an average of just 3.2 percent of jobless managers and executives started their own business.  That was about the same as the previous two quarters, when 3.3 percent of job seekers started firms.  The pace of start-up activity in the last half of the year was down significantly from the same period in 2010, when nearly six percent of managers and executives started their own business.

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.

Overall, 2011 was a dismal year for start-ups.  The start-up rate fell to an all-time low of 2.5 percent in the second quarter of the year.  It rose slightly to 3.7 percent in the third quarter, only to fall again to 2.7 percent in the final quarter.

Even in 2001, amid the dot.com collapse that was particular devastating to recent start-ups, entrepreneurship was still pursued by an average of about 8.0 percent of job seekers every quarter.  Over the past eight quarters, the average start-up rate is 3.9 percent — less than half the 2001 average.

“While big business definitely began to reap the benefits of the recovery in 2011, conditions were not nearly as fruitful for existing small business, let alone those attempting to get up off the ground.  Credit was still very difficult to come by and demand for products and services remained soft.  Basically, it was not a very inviting environment for would-be entrepreneurs,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.

It is not just job seekers who are reluctant to start businesses; the number of self-employed Americans, in general, declined by 172,000 last year, falling from 8,759,000 in December 2010 to 8,587,000 in December 2011, according to data from the U.S. Bureau of Labor Statistics.  The December figure is nearly 1.4 million fewer than the pre-recession peak of 9,973,000 self-employed in December 2006.

However, there are some signs that 2012 could bring a turnaround for small businesses as well as entrepreneurs.  In a recent survey of small business owners by the National Small Business Association, 75 percent are confident about the future of their business, with 20 percent expecting economic expansion in the coming year.  That is a significant improvement from six months ago when 64 percent expressed confidence about the future of their business and only 12 percent predicted economic expansion.

“However, despite increased confidence, only 17 percent of small business owners expect to hire new employees in the next 12 months.  So, things are getting better, but not enough to warrant increased hiring.  This could mean that conditions remain too weak to attract new entrepreneurs.

“Additionally, while small businesses may not be planning any new hiring, many medium and large firms are starting to add new workers.  Hiring at these firms may be improving just enough to lure potential entrepreneurs toward 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.  According to the Bureau of Labor Statistics, employers hired 12,220,000 new workers in the final quarter of 2011.  That was up from 11,713,000 hires in the same quarter a year earlier.

“We are at a point in the recovery where employers are beginning to hire again, but the economy remains relatively fragile.  In this environment, we tend to see a drop in start-up activity as job seekers are more comfortable with the relative stability of traditional employment as opposed to the uncertainty of  entrepreneurship.  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%

3.7%

2.7%

3.3%

Source: Challenger, Gray & Christmas, Inc.

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

Job Seekers Avoid Risk: Start-Ups, Relocation For Work Fall

The percentage of job seekers starting their own businesses or relocating for new positions fell to historic lows in 2010, according to a new report that attributes the declines to an increased aversion to risk-taking just as the job market begins to show some signs of life.

In its latest quarterly Job Market Index, global outplacement and executive coaching consultancy Challenger, Gray & Christmas, Inc. found that over four quarters of 2010, an average of just 4.7 percent of unemployed managers and executives started their own firms.  That is down from an average of 8.6 percent in 2009 and is, in fact, the weakest start-up activity on record since the firm began its tracking in 1986.

The recession created a particularly difficult environment for would-be entrepreneurs.  The previous record low for start-up activity among job seekers was 2008, when only 5.1 percent of former managers and executives started their own businesses. 

Full Report: http://www.challengergray.com/press/press.aspx

Challenger Start-Up Report: Lowest Rate On Record

A new survey shows that start- up activity plummeted in the first half of 2010 as would-be entrepreneurs were either scooped up by employers or scared off by fragile economic conditions, a tight lending market and uncertainty over the sustainability of the recovery.

Results of a survey of job seekers released by global outplacement and executive coaching firm Challenger, Gray & Christmas, Inc., show that an average of 3.7 percent opted to start their own business in the first half of 2010. That was down from 7.6 percent in the first half of 2009 and the 9.6 percent start-up rate averaged over the last two quarters of 2009.

The 3.4 percent start-up rate in the first quarter and the 3.9 percent rate in the second quarter represent the lowest two-quarter average on record, according to Challenger, which began tracking in 1986. The highest two-quarter average on record occurred in the first half of 1989, when 21.5 percent of job seekers ended up starting a business.

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Issues Bulletin: Manufacturing, Small Business Tax Credits

Challenger Workplace Issues Bulletin

MANUFACTURING: “WE’RE NOT DEAD, YET!”

Were warnings of manufacturing’s demise premature? A report out today from the New York Federal Reserve Bank revealed that manufacturing in the state expanded in June at a faster pace and is not just weathering the storm, but actually driving the recovery. Nationwide, manufacturing payrolls have seen a net gain of 126,000 new workers since the beginning of the year, according to data from the Bureau of Labor Statistics. Manufacturers not only added 29,000 workers in May, marking the fifth consecutive gain, but the workweek was longer and the overtime climbed to the highest level in two years. It is unlikely that manufacturing will ever reach its 1979 peak, when factories employed more than 19.5 million workers. However, continued gains could see manufacturing employment return to pre-recession levels, particularly if the country continues to expand research and development in renewable energy technologies, such as wind power. What is driving the gains in the manufacturing sector? What could be the biggest obstacles to sustained growth?

ILLINOIS ACTS TO HELP SMALL BUSINESSES

Illinois small businesses with 50 or fewer employees will now receive a tax credit for hiring full-time workers after Governor Pat Quinn signed the Illinois Small Business Job Creation Tax Credit Act. The governor’s comments indicated that he believes entrepreneurs will lead the country out of the economic downturn and expects the act to create over 20,000 jobs over the next year. Challenger statistics show that start-ups by former managers and executives jumped to a four-year high in 2009, as an average of 8.6 percent of job seekers started their own businesses. The highest period for start-ups came in the third quarter of 2009, as 11.8 percent started their own firms. Will start-ups continue to rise into 2010? Will tax incentives such as these increase hiring?