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Small Business Brief - Decline in business starts, latest CCI has optimistic outlook

February 11, 2015 by Gary Stockton



Small business job growth dips to 78,000 in January


According to the ADP National Employment Report issued Feb. 4, 2015, job growth among small businesses added only 78,000 jobs from December to January. While small businesses with fewer than 50 employees created jobs at a rate faster than the country’s largest companies, the number was disappointing following December’s 115,000 jobs created for the sector. The U.S. economy added 213,000 jobs overall in January, down slightly from December’s 253,000.

Despite the dip in growth, Mark Zandi, chief economist at Moody’s Analytics, says that 2015 should mark a year of growth overall adding “although the pace of growth is slower than in recent months. Businesses in the energy and supplying industries are already scaling back payrolls in reaction to the collapse in oil prices, while industries benefiting from the lower prices have been slower to increase their hiring. All indications are that the job market will continue to improve in 2015.”

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Is Regulation Stifling U.S. Business Starts?


In the NFIB’s November member survey, 22 percent of small business owners said that government regulation and red tape is the most important issue that they face today.


In the late 1970s, about 15 percent of all businesses were new; in 2011, that number hovered around 8 percent. Since 2000, high-growth entrepreneurship has also been in decline.

New companies create roughly 3 million jobs every year, while existing companies tend to create around 1 million jobs. Roughly 1 in 10 U.S. companies are founded each year, and these young firms create 100 percent of all net new jobs. New data from the federal government makes it possible to identify job creation across all firms according to their date of “birth.” The data, which goes back as far as 1977 shows an alarming downward trend, it shows America’s entrepreneurship rate is declining.

Now researchers at several leading think tanks including Ewing Marrion Kauffan Foundation, and Hudson Institute are beginning to believe that government regulation is doing more than causing entrepreneurs to gripe. They are concerned that rising regulation could keep would-be entrepreneurs from starting companies.

According to recent research the per capita rate of new employer business creation and the number of rules pages in the Federal Register are very closely correlated, and seem to suggest that the escalating regulatory requirements are creating an unhealthy business creation climate. More regulations increase the complexity of running companies. This, in turn, deters people from starting them. Second, the rising cost of complying with regulations makes marginal entrepreneurial endeavors uneconomical, which also causes the start-up rate to decline.

There are several ideas that have been proposed to Congress including a limit on regulation for companies younger than six years to a nationwide initiative in partnership with entrepreneurial organizations and facilities around the country, to develop a research framework by which all 50 states will be ranked as to their regulatory friendliness to new business formation, survival, and growth.

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Recent AFP survey points to increased spending by businesses


On the opening days of each quarter, the Association for Financial Professionals (AFP) asks select members about the size and make up of their short-term investment holdings, the results are compiled to produce the Corporate Cash Indicators report or CCI.

Business leaders expect the first quarter of 2015 will feature robust economic growth. As a result, more companies are planning to deploy their cash: the forward-looking indicator measuring the expected change of cash holdings during the first quarter of 2015 fell 11 points to a reading of -14. This was 13 points below its reading a year ago and its lowest reading in the history of the CCI. Meanwhile, the indicator for short-term investment aggressiveness gained five points to +5, as companies signal a greater desire to generate yield from their current cash holdings.

Conclusion? Companies’ decisions to shrink the size of their cash and short-term investment portfolios reflect an optimistic business outlook and direction. And that's good news for small business and the economy.

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