Nonemployers in 2008: more pain in the numbers

Posted on | June 25, 2010 | Comments Off

And the numbers just keep on rolling in this week!

The U.S. Census Bureau has just released new nonemployer numbers for 2008 and, much to my surprise, they fell — for the very first time ever.

Which I guess just goes to show that nonemployers are tough but not invincible. In 2008, they got the stuffing kicked out of them.

Nonemployers, in case you need reminding, are firms with no paid employees outside the business owner(s) and at least $1000 in taxable receipts. This data set covers 18.8 million sole proprietorships, 1.5 million corporations and 1.1 million partnerships, which together comprise the total number of nonemployer businesses.

More than half a million of them failed that year (536,958 of them, to be precise) and only 180,257 launched over the entire year. When does that ever happen? The result was a net decline of 356,701 firms, or 1.6%, and the total declined from 21.7 million to 21.4 million.

In total, nonemployers generated $953 billion in receipts, a 3% decline, and average annual incomes fell for the second year in a row, down from $45.6K to $45.0K (a 1.3% decrease).

For the most part, the story here is that largish declines in the goods producing sectors were not offset by smallish increases in the services sectors. The change is not very large statistically speaking but it was a surprise in light of averaging close to a million new nonemployers over a period of more than five years.

Normally, in times of economic hardship, new business starts increase and, since most new businesses start as nonemployers, you’d think those trends would have been reflected here.

On the other hand, people generally have to be out of work for quite awhile to be desperate enough to fling caution to the winds and create their own jobs. Perhaps they weren’t quite desperate enough in 2008; the truly huge job loss numbers didn’t start until late 2008 and early 2009.

The biggest hits to the nonemployer population are no surprise at all, coming in the real estate (down by almost 200,000 firms) and construction sectors (another almost-130,000 firms lost).

It’s tempting to try to write this off as specific to those two industries, which had been hurting for some time by 2008. On the other hand, additional losses occurred in manufacturing, wholesale and retail trade, transportation/warehousing, information, and finance.

From that list, it seems pretty clear that the dip in consumer spending in 2008, which happened in response to accelerating job losses and the financial crisis at the end of the year, took its toll on the nation’s nonemployer firms, too.

On the other hand, when you turn around and look at the money, things might not have been so bad for many of the nonemployers who were still standing in the wake of the carnage.

Several industry sectors that saw declines in the number of nonemployer firms, also saw increases in receipts (overall or average). Those sectors include finance (average annual receipts up by 8%), transportation/warehousing (a distant second, up by almost 5%), and wholesale (up 2.7%).

Receipts in construction were only down by 5% and, in real estate, down by 2.6%, so those who were still in business at the end of 2008 weren’t doing too badly either, in terms of personal incomes.

The big story for this data year, in terms of growth, is to be found in the mining sector and, specifically, in oil and gas extraction. Nonemployers in mining increased their numbers by 7%.

More spectacularly, overall receipts for the sector were up by a whopping 29%. Annual receipts in the sector gained more than $18K per firm on average, which amounts to a 20% pay raise for business owners in the sector.

Elsewhere, the positive movement in the numbers in most of the services sectors was pretty small. The educational services sector and the health care services sector had been growing at a healthy clip (health care was still adding jobs through much of the recession) but for this data year, growth was tepid.

In educational services, nonemployers increased in number by 4.4% and improved their receipts by a paltry 0.5%. In health care services, nonemployer population was up 2.5% and receipts similarly gained by 2.6%.

The big question now is whether there were similar declines in employer firms in 2008. We have seen that 2007 saw a number of small businesses shrinking to micro-size. Clearly, these numbers do not suggest that there were many employers that shrank down to nonemployer size.

So, will we see similar trends in the employer firm size data for 2008 or was this just a particularly painful year for the normally sturdy nonemployer? We’ll have to wait until next year to find that out.

Cue the toe-tapping.


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