Connecting the Dots: The Single Most Important Economic Statistic that the White House Never Talks A
By Tony Sagami
For the first time in 35 years, American business deaths now outnumber business births. —Jim Clifton, CEO, Gallup Polls
I’ve been self-employed since 1998, and let me tell you, the life of a business owner isn’t easy. It’s filled with long hours, a relentless amount of paperwork, and uncertainty of where your next paycheck will come from. If you’ve ever owned a business, you know exactly what I’m talking about.
Difficult or not, self-employment is extremely rewarding, and I wouldn’t have it any other way. Nor would the other 6 million business owners in the United States. Of those 6 million businesses, the vast majority are small “Mom and Pop” businesses. Here are more statistics on businesses in the US:
- 3.8 million have four or fewer employees. That’s me!
- 1 million with 5-9 employees;
- 600,000 with 10-19 employees;
- 500,000 with 20-99 employees;
- 90,000 with 100-499 employees;
- 18,000 with 500 employees or more; and
- 1,000 companies with 10,000 employees or more.
Those small businesses are the backbone of our economy and responsible for employing roughly half of all Americans. Moreover, while estimates vary, small business create roughly two-thirds of all new jobs in our country.
For those reasons, the health (or lack thereof) of small business is the single most important long-term indicator of America’s economic health. Warning: new data suggest that small businesses are in deep trouble.
For the first time in 35 years, the number of business deaths outnumbers the number of business births.
The US Census Bureau reported that the birth and death rates of American businesses crossed for the first time ever! 400,000 new businesses were born last year, but 470,000 died.
Yup, business deaths now outnumber business births.
Pay attention, because this part is important.
The problem isn’t so much that businesses are failing, but that American entrepreneurs are simply not starting as many new businesses as they used to.
We like to think of America has the hotbed of capitalism, but the US actually is number 12 among developed nations for new business startups.
Number 12!
You know what countries are ahead of us? Hungary, Denmark, Finland, New Zealand, Sweden, Israel, and even financially troubled Italy are creating new businesses faster than us!
The reasons for the capitalist pessimism are many, but my guess is that the root of the problem comes down to three issues: (1) difficulty of accessing capital (loans); (2) excessive and burdensome government regulations; and (3) an overall malaise about our economic future.
Business owners are permanently smitten with an entrepreneurial bug, and the only thing that prevents them from seeking business success is the expectation that they’ll lose money.
Sadly, the lack of new business startups is confirmation that American’s free enterprise system is broken.
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“There is nobody in this country who got rich on their own. Nobody. You built a factory out there—good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory… Now look. You built a factory and it turned into something terrific or a great idea—God bless! Keep a hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.” |
“When small and medium-sized businesses are dying faster than they’re being born, so is free enterprise. And when free enterprise dies, America dies with it,” warns Gallup CEO Jim Clifton.
I don’t believe for a second that America’s free-enterprise system is permanently broken. The pendulum will eventually swing the other way, but our economy will not enjoy boom times until the birth/death trends are reversed.
That won’t happen next week or next month. It will take serious, fundamental changes in tax, regulatory, and judicial rules, and I sadly fear that it will take several years for that to happen.
Until then, our economy is going to struggle and will pull our high-flying stock market down with it. Are you prepared?
If you’re not familiar with inverse ETFs, you’re ignoring one of your best defenses against tough times. An inverse ETF is an exchange-traded fund that’s designed to perform as the inverse of whatever index or benchmark it’s designed to track.
By providing performance opposite to their benchmark, inverse ETFs prosper when stock prices are falling. An inverse S&P 500 ETF, for example, seeks a daily percentage movement opposite that of the S&P. If the S&P 500 rises by 1%, the inverse ETF is designed to fall by 1%; and if the S&P falls by 1%, the inverse ETF should rise by 1%.
There are inverse ETFs for most major indices and even sectors and commodities (like oil and gold), as well as specialty ETFs for things like the VIX Volatility Index.
I’m not suggesting that you rush out and buy a bunch of inverse ETFs tomorrow morning. As always, timing is critical, so I recommend that you wait for my buy signals in my Rational Bear service.
But make no mistake, the birth/death ratio is signaling serious trouble ahead. Any investor who doesn’t prepare for it is going to get run over and flattened like a pancake.
Tony Sagami
30-year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here. To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.
Dammit Admin, like I’ve been saying for the last 5 years on this damn site, BABY BOOMERS are retiring. This includes BABY BOOMER business owners.
Sheesh.
The business decline started during the first clinton rein, yet to see a bottom.
Unless you have a great business plan and no debt, with all the cards stacked against the free market, it’s foolish to start any new business, most are lucky under, dodd/frank, banks won’t loan to new business.
My son started his business five years ago, his is a niche business so he is busy, he faces the same issues of obamacare, present and yet to be thought of taxes on his production and his hard work, his biggest hurdle is the workforce.
His 25 employees all carry various college degrees, some good degrees, mostly worthless degrees, but all share the burden of student debt and varying degrees of liberal views.
It’s hard to find employees willing to work for what the market is willing to pay.
Small business IS the backbone of our economy – but even though most citizens work for small businesses, they accept the political status quo that’s stacked against them.
A minority is prospering at the expense of a majority of taxpayers. The political influence of very wealthy individuals, special interests (financial, big industries, lawyers, unions, etc.) are destroying small business which is the largest sector of our economy. Some small businesses may receive some government assistance via tax breaks or subsidies from political connections but overall small business is going down the drain. I see empty office space accumulating.
Many could care less since small business isn’t a big star on wall street but as small business declines, do does our country. It’s easier (and safer) for citizens to get drunk, get high, be bribed with a monthly government check, have their privacy invaded, and watch sports and entertainment rather than stand up for themselves to rescue their jobs and future. However, without a self-respect and a strong sense of patriotism, citizens forfeit their freedom.
Most would prefer to live in our economic fantasy than face reality and deal with our serious problems. Their apathy, subservience, and willingness to be helplessly dependent on government will cause their ruin since living in a federal reserve easy money bubble isn’t creating real growth of millions of GOOD jobs, reducing staggering debt, or dealing with rising inflation, unemployment, illegal immigration, HFT and Derivatives excesses all of which are being grossly understated or ignored. I wonder what the true amount of S&P 500 stock futures the fed is purchasing of various industries and big corporations to prop up wall street and how much money is really going to the IMF to prop up European central banks. Just a enormous Ponzi scheme as economic fundamentals deteriorate.
The more politicians fail to grow economic opportunity for citizens to prosper, the more they bribe citizens and various industries/corporations to buy their loyalty to get re-elected – and defuse civil unrest. Bribery may pacify the public but it doesn’t solve our serious economic problems. Neither does raising taxes or many bad trade deals that have outsourced 6 million good jobs to other countries. Neither does flooding our country with illegal and low wage workers.
Everyone wants their piece of the US budget pie which only tears our country to pieces. But those who put themselves first and care only about whether they can profit or receive monthly government checks (earned or not) REGARDLESS OF HOW CORRUPT OUR POLITICAL AND FINANCIAL SYSTEMS ARE AND THEIR FAILURE TO GROW REAL PROSPERITY only drag our country down – and themselves with it.
Lies about economic “recovery” plus depleting resources, plus a depleting middle class are pushing us to disaster. Unfortunately, few want to see this coming to try to save themselves, their children, and future because ignorance is bliss – at least until ignorance is overwhelmed by devastating economic collapse.
So much hand wringing. Nothing another round of M&A can’t fix. Wait……but I did hear that all these immigrants are more entrepreneurial then us. Sooooooooo… that will fix everything, right? Testify, brother obongo!