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Fewer new businesses being formed

By many accounts, the American economy is rebounding. Hiring is accelerating, wages are rising, and the labor force is growing. Confidence among business leaders is up, too.

In one area, though, the economy seems to be in serious trouble: entrepreneurship.

“It all feels pretty good,” Mark Zandi, chief economist at Moody’s Analytics, said during a forum on entrepreneurship this past week in Washington. “But I think there are things to be worried about, and the state of entrepreneurship is one of those things.”

New research shows that the country’s rate of business creation, which peaked about a decade ago, fell 31 percent during the recession and has been slow to bounce back. That’s despite the fact that the share of the U.S. population between ages 25 and 55 – usually the prime years for starting a business – has expanded, according to new data released by the Kauffman Foundation, a research and advocacy group, at its annual State of Entrepreneurship symposium last week.

Not surprisingly, fewer new businesses means fewer new jobs. Zandi noted that firms less than a year old contributed 5.2million jobs in the year ended June 2014, down from the usual 6million they generated in the years leading up to the recession and well off the pace of the more than 7million jobs a year they created in the 1990s.

Meanwhile, as the rate of business formation slowed, the pace of business closures started to rise in 2005 and spiked in 2008, according to data from the Brookings Institution. As a result, business deaths now outpace business births for the first time since researchers started collecting the data in the late 1970s.

The Obama administration has taken note of the slump. The leaders of two federal agencies in the past week announced new initiatives intended to support early-stage companies and kick-start the nation’s entrepreneurship engine.

▪ Commerce Secretary Penny Pritzker unveiled a pilot program designed to teach entrepreneurs the ins and outs of exporting. The department will offer the training starting at the 1776 incubator in Washington, as well as three other incubators in Arlington, Texas; Nashville, Tenn.; and Cincinnati.

▪ On the same day, the Small Business Administration rolled out a new online portal designed to quickly connect entrepreneurs with private microlenders. SBA Administrator Maria Contreras-Sweet described the portal as a “matchmaking” service that can save small (and often relatively new) companies time over going door-to-door to banks seeking a loan.

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