Nonemployers take a beating again in ‘09

Posted on | July 29, 2011 | Comments Off

It’s gotten to be that time of year again.

Yesterday, the U.S. Census Bureau released new nonemployer numbers and we’re seeing a continuation of a trend that started last year: for the past two years now, the number of nonemployers has been declining.

That’s a big deal, at least in part because that had never happened before last year.

Overall, the number of nonemployer firms fell by a little less than a quarter of a million firms, down from 21.3 million to 21.1 million establishments. That’s a 1% decline in population.

Now, here’s the part I say every year: just to remind you, nonemployer firms are those with no paid employees outside the business owner(s). Firms with taxable receipts of at least $1,000 are included but the upper cap is a bit more complex than it used to be:

“For corporations and partnerships this cutoff is $1 million, except for service-type industries, where the cutoff is $2 million. For sole proprietorships, the cutoffs vary widely depending upon industrial classification. For some nonemployer sole proprietorships, such as those engaged in investment and entertainment, it may be possible to have well over $1million in receipts. However, it is unlikely that a sole proprietorship restaurant, for example, would have over $1 million in receipts and have no paid employees.”

In addition (if I might take a trip into data geek-ity), Census has made some changes in its methodology here. That meant that it would have been inaccurate to have made any direct comparisons between last year’s data and this year’s data. To address this problem (and to illustrate what the changed methodology might have done to previous data), Census released the 2008 numbers calculated according to the new methodology. I am using those new numbers here, rather than those I used for last year’s update.

One other note: as a general matter, while some firms are owned by more than one person and some persons own more than one firm, it all averages out so that the number of nonemployer firms is a pretty good proxy for the number of nonemployer firm owners in the country.

Okay, now that we’ve got all that technical stuff out of the way …

“Nonemployer firms generate a small percentage of total U.S. business receipts, but they constitute the majority of U.S. businesses,” said William G. Bostic Jr., associate director for economic programs at the U.S. Census Bureau. “The decline we have seen since 2008 reflects the change in economic conditions during that time.”

You can say that again.

And, in fact, the money tells a much more dire tale than the population numbers. Aggregated receipts for all nonemployer firms fell from $930 billion to $837 billion, a fairly steep $92 billion drop (down 10%). Average, per-business receipts for nonemployer firms declined from $43,645.86 to $39,723.29 — imagine taking a 9% pay cut ($3,922.56).

When you look at the number of firms according to NAICS codes, what you see makes sense in the aftermath of the collapse of the financial markets in September 2008.

Not all industry sectors lost large numbers but those that did are either capital intensive industries like manufacturing and retail, or they rely heavily on financing of transactions like real estate and finance/insurance. Utilities (down 9.75%), mining (down 8.77%) and real estate (down 7.22%) were the top three losers there.

On the other hand, nonemployers in the services sector continued to add firms in 2009 — but not in large enough numbers to make up for the carnage in the goods producing and financial sectors. “Other services” grew by 3.6%, heath care ans social assistance increased in number by 3%, and Administrative, et al., was a somewhat distant third, increasing in population by 1.76%.

Once again, though, the real pain was in the pocketbook. There was not a single industry sector that experienced any positive growth in receipts. The question there, instead, was who was hurting the most and who seemed to be weathering the storm while taking the least damage.

The mining sector took some big hits during the year. Aggregate receipts were down by more than 25%, while individual average receipts declined by 18%. That translates into a decline from $68,122 to $55,754 or a pay cut of roughly $12,755.

Ouch.

Nonemployers in transportation/warehousing (14%), accommodation/food services (16%), construction (12%), and manufacturing (10%) had the dubious distinction of rounding out the top five in pay cuts for the year.

Something new for this data release is that Census included income ranges for nonemployers. So, for example, we now know that one in four nonemployers earned less than $5,000 in taxable receipts in 2009.

The vast majority of nonemployers (82% of them, in fact) have annual receipts of less than $50,000. The remaining 18% earn more than $50,000, with 0.8% of them making $500,000 or more.

There are any number of ways to look at that and certainly there is no shortage of people who would be willing to label these tiny firms as having such low revenues as to be without value to the overall economy. On the other hand, given that 56% of nonemployers’ earnings fall between $5,000 and $50,000, it seems that there are quite a few of these people who are making a living.

For the owner/operators of nonemployer businesses, that is the point.


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