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BUSINESS Friday 6 September 2019
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A slowdown in US business formation poses a risk to economy

By JOSH BOAK weighed down by student
Associated Press debt and larger retailers
WASHINGTON (AP) — De- have used their scale to of-
spite a decade-plus of eco- fer lower prices than small-
nomic growth, Americans er companies can afford to
have slowed the pace at do so. Roughly two-thirds of
which they’re forming new the decline in startups be-
companies, a trend that tween the late 1970s and
risks further widening the 2007 resulted from a slow-
gap between the most af- down in the growth of the
fluent and everyone else. U.S. workforce, according
The longest expansion on to research by Fatih Kara-
record, which began in han of the Federal Reserve
mid-2009, has failed to re- Bank of New York, Benja-
store entrepreneurship to min Pugsley of the Univer-
its pre-recession levels, ac- sity of Notre Dame and Ay-
cording to a Census Bureau segul Sahin of the University
report based on tax filings. of Texas-Austin.
Between 2007 and the first But the recovery from the
half of 2019, applications Great Recession, which
to form businesses that was induced by the hous-
would likely hire workers ing bust, also reordered
fell 16%. Though that pace the economy in ways that
improved somewhat af- In this July 1, 2019, file photo the sunlight flares around the buildings in lower Manhattan as the sun complicated the creation
ter 2012, it dipped again rises in New York. of smaller businesses. Sev-
this year despite President Associated Press eral sectors of the econo-
Donald Trump’s assertion its.” els low to reduce his costs. tions. Both factors tend to my enjoyed no rebound at
that his tax cuts and dereg- Smaller companies and Still, that meant having to slow the formation of new all in company formations
ulatory drive would ben- startups were generally pay well above the mini- companies. compared with the num-
efit smaller companies and cautious about expanding mum wage to attract and Among the business own- ber of business closures.
their workers. as they emerged from the retain workers who were ers who were surveyed, The economy now includes
In addition, smaller com- Great Recession, in many specialized in home decor. nearly eight in 10 said they 116,459 fewer construction
panies account for roughly cases choosing not to hire. “I am super-concerned favor a higher local mini- companies than it did in
85% of all hiring, making The 2008 financial crisis de- about an upcoming re- mum wage well above the 2007, a roughly 15% de-
them an entry point for livered a warning to many cession because we got federal baseline of $7.25 cline, according to the
most workers into the work- would-be entrepreneurs so lean that I can’t get an hour. Focus groups con- Census Bureau. There are
force. A decline in the cre- that scaling back their am- lean again,” Johnson said. ducted as part of Gold- 54,045 fewer retailers that
ation of new companies bitions might help them sur- “There is no more fat to man’s survey indicate that employ fewer than 20 peo-
results in fewer companies vive another recession. trim.” smaller companies believe ple, a consequence in part
competing for workers, a “People became a lot Goldman Sachs on Thurs- wages have failed to keep of a shift to online shopping
trend that generally slows more risk-averse after the day is releasing a survey of pace with the costs of liv- and the rise of national
pay growth. Great Recession because business owners who took ing and the retention of chain stores. More than
“What you see is reduced so many people were part in its “10,000 Small Busi- employees. 26,000 small manufacturers
social and economic mo- hurt,” said Nicholas John- nesses” program, which Just 20% of the surveyed have shuttered.
bility,” said Steve Strongin, son who founded Su Casa, has provided manage- business owners said they The spillover effects have
head of global investment a chain of four furniture ment training to several felt that Trump’s 2017 tax had damaging conse-
research at Goldman stores based in Baltimore thousand small companies cut would increase their quences in many cases.
Sachs. “It means that most that employs 30 workers. since 2010. The survey con- companies’ growth, ac- Downtowns in the industrial
of the growth is occurring Johnson, 45, started Su cluded that entrepreneurs cording to the online sur- Midwest have empty store-
in the corporate sphere, Casa about 20 years ago. typically struggle to find vey of 2,285 alumni of the fronts. Home construction
which keeps wage growth Emerging from the reces- qualified workers and to Goldman program. Social has been relatively weak,
down and improves prof- sion, he kept his staffing lev- navigate complex regula- and demographic forces causing prices to acceler-
are also thought to be lim- ate. This has limited afford-
Survey: US services sector expands iting opportunities for en- ability and made it harder
trepreneurs and smaller for people to join the mid-
at faster pace in August companies. America is ag- dle class through home
ing, many young adults are ownership. q

By BANI SAPRA rose to 56.4 from 53.7 in appear so far to have
Associated Press July after two months of avoided the challenges
WASHINGTON (AP) — U.S. cooler growth. Readings faced by the manufac-
services expanded at a above 50 signal growth. turing sector.
stronger pace in August, Services make up the bulk The index’s measures
driven by an uptick in of US economic activity, of business activity and
business activity and new so the results are a reas- new orders drove the
orders. suring signal of continued rebound, climbing by
The Institute for Supply economic strength. While 8.4 and 6.2 percentage
Management, an as- services companies sur- points. Hiring activity fell
sociation of purchasing veyed express their con- by 3.1 points as employ-
managers, says that its cern over tariffs and geo- ment grew at a slower
non-manufacturing index political uncertainty, they pace.q