This Week's Herman Trend Alert

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  The Herman Trend Alert

July 15, 2009

Small Businesses Will Likely Lead the Recovery

Previous Herman Trend Alerts have stated that most job creation occurred in small- and medium-size businesses. While we have witnessed recent widespread job losses, historically small business' net job creation will make it a key player in our economic recovery. Not surprisingly, many people who have not been able to find employment have chosen to go into business for themselves.

According to the United States Bureau of Labor Statistics (BLS), nonfarm, private sector employment peaked at 115.8 million in December 2007 then fell to 109.5 million by May 2009. At this time, job losses from mass layoffs added up to 3.6 million, up 66 percent over the preceding 18 months. The loss of over 6 million net jobs is a huge problem for the US. This jobs decline is just in the US, in December alone, Brasil lost 654,000 jobs. In fact a single day in January, almost 80,000 jobs were lost or put under threat in the United Kingdom, Europe, and US.

When considering where the new jobs will come from, remember that there are two kinds of small businesses: those without employees (or non-employer businesses), and those with paid employees (or employer businesses). The US Small Business Office of Advocacy estimates that in 2008 there were 23.1 million non-employer and 6.1 million employer businesses.

When the economy struggles, the number of non-employers tends to increase at higher rates, while the number of employer businesses stagnates or declines. Going into business for themselves (becoming non-employers) has been a lifesaver for an additional 1.7 million individuals and their families. However since most of these non-employers work only part time, we are most interested in employer firms. In the aftermath of the 1991 downturn, firms with 20-499 employees led employment expansion, while the smaller- and larger-size businesses struggled. During the 2001 downturn, larger firms (500 or more employees) experienced the greatest net employment losses, followed by firms with 20-499 employees. The smallest firms, with fewer than 20 employees, weathered that storm better than the others.

Expect small- and medium-size businesses and the services that support them to lead the economic recovery worldwide.

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