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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The latest reading of small business optimism conducted by the National Federation of Independent Business (NFIB) was not very positive, falling from an index level of 92.2 in May to 89 in June. This does not bode well for the nation’s job seekers, as small businesses represent more than 99 percent of all U.S. employers and account for about 60 percent of gross job creation. The NFIB optimism index found that a net of just 1 percent of small firms are planning to hire in the coming months.
Making matters worse for small business owners is a dramatic decline in the amount of lending to these firms. The New York Times cited federal data showing that lending to such small businesses fell more than $710 billion in the second quarter of 2008 to below $670 billion in the first quarter of this year.
The tough business environment certainly is not attracting new entrepreneurs into the game. A quarterly Challenger survey of jobless managers and executives found that an average of 3.7 percent started their own business in the first half of 2010. That was down from 7.6 percent in the first half of 2009. Challenger will release a more detailed report on start-up activity on Monday, July 19. What will small business owners need to see before their confidence level and hiring begin to increase? What are the biggest obstacles to starting a business?
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Yesterday’s announced acquisition of human resources consultancy Hewitt Associates by the Chicago-based insurance-broker Aon Corp., is undoubtedly creating some anxiety among the employees at both firms. The Chicago Sun-Times reported that the 4,500 people employed by Hewitt in the Chicago area will become part of 6,300-employee Aon Consulting unit. While both companies said it was too early to anticipate the need for or extent of job cutting, such measures are typical in the wake of corporate marriages. Indeed, Aon said it expects the deal to save $355 million annually beginning in 2013, primarily from reducing back-office areas, management overlap and public company costs and utilizing technology platforms. According to Challenger tracking, mergers and acquisitions have resulted in 27,880 planned job cuts through June of this year. That is down 40 percent from the 46,448 merger-related job cuts announced in the first six months of 2009. Will merger activity increase as the economy improves and will it lead to more job cutting? What challenges do companies face when combining varying corporate cultures? What can workers at merging firms do to protect their jobs?
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?
HEALTH CARE REFORM COULD CREATE NEW JOBS
The health care sector has been one of the few bright spots in this otherwise depressed job market. Over the past 12 months, health care employment has grown by nearly 300,000 workers, while most other sectors continue to shed jobs. As the debate over health care reform rages on across the country, few have examined what the proposed changes will mean for job creation. Part of the problem with attempting to determine how health care reform will impact employment is that no one knows what the final legislation will contain. However, if the bill that passes accomplishes one of the primary goals of reform, which is to get the millions of uninsured some type of health coverage, then we are most likely going to see a rise in the demand and use of health care services. This, in turn, will increase the need for more health care workers, particularly those specializing in preventive care and long-term care. What are the pros and cons regarding health care reform when it comes to small business? Which health care occupations could see the biggest boom from health care reform?
FANTASY FOOTBALL’S IMPACT ON WORK PRODUCTIVITY
With the NFL season opening games less than two weeks away, Fantasy Football participants across the country are finalizing their draft picks and preparing for 17 weeks of point tracking, roster shuffling and player trades. With many Fantasy Footballers using their workplace Internet to research players and make mid-week team moves, what will the impact be on office productivity? Should employers be worried or should they find a way to embrace the growing popularity of Fantasy Football and use it as a morale- and camaraderie-building activity?
DISNEY BUYS MARVEL COMICS
On the surface today’s announced merger between Disney and Marvel Comics appears to be a win-win for all parties. And it may indeed prove to be one, as Disney is able to benefit from increasingly successful comic book franchises, while Marvel obtains the unparalleled marketing strength of Disney. However, one challenge could be difficult to overcome: the task of combining what are likely to be highly divergent cultures of the two corporations. The clash of corporate cultures has been a contributing factor in many mergers that failed to deliver on expectations, including the ill-fated marriage between Time-Warner and AOL. How do companies decide if they are a good fit for each other? Are job cuts likely to follow the closing of the merger? What should employees of both companies be doing now and after the merger to increase job security?