Despite continued tightness in the lending market and few signs of an imminent recovery, a new survey shows that the percentage of job seekers starting their own businesses jumped to its highest level since 2007, indicating that confidence among entrepreneurs could be on the rise.
The latest results from the quarterly Challenger Job Market Index released Thursday by global outplacement consultancy Challenger, Gray & Christmas, Inc., reveal that 8.7 percent of job seekers gaining employment in the second quarter of 2009 did so by starting their own enterprises. That is up from 6.4 percent in the previous quarter and it was nearly double the start-up rate of 4.3 percent in the second quarter of 2008.
The second-quarter figure was the highest since the third quarter of 2007, when 10.1 percent of job seekers started businesses. As recently as the final quarter of 2008, the start-up rate fell to a record low of 2.7 percent.
The quarterly Challenger Index is based on a quarterly survey of approximately 3,000 job seekers in a wide variety of industries nationwide.
ìThis environment is not very conducive for starting a business, which makes the increase in entrepreneurial activity among job seekers that much more remarkable. Credit is still extremely difficult to obtain and spending by businesses and consumers remains relatively meager. However, there have been some signs that the economy finally stabilized after its dramatic freefall, which may be enough spark for eager entrepreneurs,î said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.
Indeed, confidence among existing business owners appears to be on the rise. In a monthly survey of small business owners by the National Federation of Independent Business, the Optimism Index reached 88 in June, up from 84 in January. While the Index is still well below the baseline of 100, it is heading in the right direction after to falling to a recent low of 81.
ìSmall business owners do not quite see the light at the end of the tunnel, but there is a sense that we have at least passed the halfway point. Once banks are in a position to open the lending spigot again, we are likely to see a surge in start-ups,î said Challenger.
The small increases in start-up activity among the job seekers surveyed by Challenger have yet to impact the overall number of self-employed workers tracked by the government. The latest data from the Bureau of Labor Statistics show that in June there were about 9.1 million Americans, who were self-employed in non-agricultural industries, down from 9.6 million a year ago.
Interestingly, the level of self-employment, as tracked by the Bureau of Labor Statistics, reached a record high of 9.99 million in June 2007, just a few months before the recession began in December.
Even as the percentage of job seekers turning entrepreneurs edges toward 10 percent, it is unlikely that the start-up rate among the unemployed will reach levels achieved in the late 1980s and early 1990s. Between the inaugural year of the Challenger Index in 1986 and 1992, the start-up rate averaged 16 percent annually, peaking in 1989 when 20 percent of job seekers became entrepreneurs.
From 1993 to 1996, the annual start-up rate averaged 10.6 percent. In 1997, entrepreneurship among job seekers declined even further, falling to an annual average of 6.5 percent, which was the record low until last year, when the average bottomed out at 5.1 percent.
ìIt is important to remember that we are surveying individuals who were forced into the labor market through job loss. As a result, these individuals are a little more averse to risk than those who voluntarily leave their employers to pursue entrepreneurial activities,î said Challenger.
ìAs the economy recovers, the biggest increase in new start-ups is likely to come from those who launch businesses while still employed. We could also see a surge in entrepreneurship among retirees,î said Challenger.
In the recovery, companies will rely heavily on contract workers as they approach re-staffing with caution. They will want individuals who have a clear understanding of the industry and can hit the ground running. Who better than a project-seeking industry veteran?
Starting business still too risky for most
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