Thursday, July 16, 2015

US Economy: Small Is Beautiful (excerpt)

Notwithstanding politicians’ claims, businesses create jobs, not Washington. To be more exact, it is small businesses started and run by entrepreneurs that create most of the jobs in our economy.

ADP, the payroll processing company, compiles data series on employment in the private sector of the US labor market by company size. The series start during January 2005. Since then through June 2015, small companies with 1-49 employees added 5.1 million workers and had payrolls totaling 50.2 million. Medium-sized companies with 50-499 employees added 3.8 million workers and had payrolls totaling 43.0 million. Large companies with 500 workers or more cut 234,000 from their payrolls, which totaled 26.5 million.

Small and medium-sized companies currently account for 42% and 36% of private payrolls, according to ADP. Large companies account for just 22% of total private payrolls, down from 24% at the start of 2005.

This is really remarkable data. It suggests that if Washington’s policymakers really and truly want to create jobs they should provide a favorable business climate for small and medium-sized companies. The best way for Washington to do that is to cut their taxes and reduce their regulations. That’s what small business owners tell the folks at the National Federation of Independent Business (NFIB) who poll them monthly about business conditions. When asked about their biggest problems, the average responses over the past six months through June showed 22.0% and 21.8% complaining about taxes and government regulation. Only 11.3% said that sales are poor, while merely 2.2% said that credit conditions are tight.

Today's Morning Briefing: Entrepreneurial Capitalism at Work. (1) Who actually creates jobs? (2) ADP data show that small and medium-sized companies do most of the hiring. (3) Be nice to small business owners. (4) NFIB survey data show profits drive employment and capacity cycles. (5) National unemployment rate closely correlated with NFIB indicators. (6) Wage inflation should be higher given all the job openings. (7) Barack, Elizabeth, and Hillary spout the party line. (8) Entrepreneurial vs. crony capitalism. (9) SMidCaps have led the bullish charge. (10) Morgan Stanley warns that China could cause next global recession. (11) Still muddling along. (12) Focus on market-weight-rated S&P 500 Information Technology. (More for subscribers.)

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