When is bad news considered good news? When the number of business start-ups goes down but employment goes up, according to Joseph Duncan, vice president and chief economist for Dun & Bradstreet Corp.
A recent Dun & Bradstreet report shows that for the first six months of 1996, new business starts added to its database totaled 84,952-down 2 percent from the total tallied in the first half of 1995. "You would normally say if the number of entrepreneurs is down, it's a sign of a weakening economy," says Duncan. "And yet the current business cycle effect shows the economy is strong and not weakening."
Does this mean fresh batches of entrepreneurs are of less import to our economy? Quite the contrary. Says Duncan, "New businesses are playing a bigger role this year than last year."
Huh? The key, Duncan explains, is not the drop in actual start-ups, but the 8 percent increase in employment created by these companies. While a recent survey of existing companies revealed they had even lower expectations of adding workers than they did a year ago, Duncan notes, "this 8 percent increase [among business start-ups] helps explain why overall job growth is stronger than most people expect: New businesses are starting up with more economic force."
Meanwhile, Duncan believes the drop in the number of business start-ups is nothing to worry about, though it may indicate a tightening up of certain markets. "When the economy starts to improve, a lot of people go out with their ideas for starting a business," Duncan says. "And after a while, the field gets crowded. A lot of the [obvious] ideas have been taken. That may be the factor behind the 2 percent [drop]. As far as whether this is a long-term trend, we have to wait and see how it goes. It takes longer than just a few months to establish a strong trend."-Janean Chun