Full access to Entrepreneur for $5

Small-Business Hiring May Signal Recession End

New data matches hiring pattern of last recession

Opinions expressed by Entrepreneur contributors are their own.

A small-business hiring spike in the fourth quarter may be a signal that the economy is poised to rebound. If so, it would be a repeat of the hiring pattern when the 1990-1991 recession neared its conclusion.

Challenger, Gray & Christmas Inc., said Thursday that 67 percent of job seekers went to small businesses in the fourth quarter. That marked a dramatic 22 percent increase from the second quarter level of 55 percent, which came on the heels of the recession's official start last March. The second-quarter figure was the lowest figure since 53 percent was recorded in the third quarter of 1990, which is when the last recession began, according to the National Bureau of Economic Research.

The recovery from recession which began in April 1991 was preceded by a first-quarter jump in the percentage of job seekers going to small firms, to 69 percent, 30 percent higher than the 53 percent recorded two quarters earlier. "The similarity between the current situation and 1990-1991 is not a coincidence," said John A. Challenger, CEO of Challenger, Gray & Christmas. "Small businesses are less insulated from changes in the economy compared to large corporations. {They] are simply better suited to react quickly to those changes because they lack the bureaucracy common in most large corporations."

As the nation's largest employer and biggest job creator, small businesses--those with fewer than 500 employees--are a critical bellwether to the overall health of the economy. According to the SBA, these firms create about three-quarters to two-thirds of the net new jobs, depending on the year studied. The agency's latest statistics show that 68 million, or 58 percent, of all private-sector employees worked for small firms in 2000.

"Today, small businesses should be monitored for signs of global economic trends, since an increasing number have growing volume in the import and export of goods and services. The Internet, which has made the world a smaller place on so many levels, has been a leading factor in the small-business expansion into the global marketplace," said Challenger.

A 1998 study by the International Trade Administration found that small enterprises accounted for over 97 percent of the growth in the number of U.S. exporters between 1992 and 1997, which nearly doubled from 108,000 to 202,000. Very small companies, those with fewer than 20 employees, made up 65 percent of all U.S. exporters.

"Job seekers often discover that smaller firms are able to offer flexibility when it comes to balancing work and family. This has become increasingly important to many workers, particularly since September 11," observed Challenger. "Small businesses can also be ideal for those seeking to make a definitive impact on day-to-day operations and the bottom line of their employer. Lacking the money, time and personnel needed for extensive training, small firms need people who can hit the ground running and are able to contribute immediately."

The Challenger data is based on a Job Market Index of 3,000 discharged managers and executives from a variety of industries across the United States.