Laborious evaluations offer entrepreneurial insights

Raymond Keating
Raymond Keating

Some of the headline numbers in the June jobs report from the Bureau of Labor Statistics require explanation. There were solid job gains, and labor force participation experienced a big jump. But the number of self-employed, an important measure of entrepreneurship, presents concerns.

As for data from the establishment survey, payrolls grew by a pretty solid 213,000 in June, with April revised up from a gain of 159,000 to 175,000 and May from being up by 223,000 to 244,000.

The more interesting labor market numbers come via the household survey, which tends to be more volatile, but also better captures small business and startup hiring. This also is where we get the unemployment rate, which rose to 4 percent in June. While clearly the most quoted jobs-related number, it has limited value since both levels and movements in the unemployment rate can be misleading in terms of what’s actually going on in the labor market.

Most would see an increase in the unemployment rate as a negative, but that’s not always the case. The unemployment rate increased in June because there was a big jump in the labor force —  increasing by 601,000 — and the accompanying labor force participation rate increased to 62.9 percent. More people came back into the labor force, and that’s good news, especially given the trend has been down from more traditional levels for an economic recovery and expansion period.

According to the household survey, employment rose only 102,000 in June. That’s underwhelming, but it did come after a gain of 293,000 in May. Also, the employment population ratio came in at 60.4 percent in June.

The troubling numbers are to be found in two measures of entrepreneurship — unincorporated and incorporated self-employed. The unincorporated data is seasonally adjusted, so we can make month-to-month comparisons, and June came in at 9.464 million, which was down from 9.755 million in May and 9.793 million in March of this year. The June level is the lowest since August of last year.
For further perspective, the previous high came in at 10.912 million in April 2005.

As for incorporated self-employed, this data isn’t seasonally adjusted, so we must make comparisons to the same period in the previous year. The June 2018 level registered 5.586 million. That compared to 5.611 million in June 2017 and off from the high of 5.711 million in June 2008. In the last three months, the 2018 level was down versus the same months in 2017.

For the sake of economic, income and employment growth in the near term and over the long haul, a re-ignition of entrepreneurship is essential. Thankfully, more businesses are now starting than closing, which was not the case from 2009 to 2011. Still, entrepreneurship has remained weak, especially among younger people.

It’s imperative the United States return to healthy levels of entrepreneurship.
New business creation is vital to innovation, quality job creation and economic mobility. While progress has been made on the policy front through tax and regulatory relief, much work remains towards improving the business environment so more people have the resources they need and take the risk of launching a business.