60% Of US Metro Areas See More Businesses Close Than Open

Tyler Durden's picture

Via The Economic Innovation Group,

It may come as a surprise that Americans are less likely to start a business, move to another region of the country, or switch jobs now than at any time in recent memory. But dynamism is in retreat nationwide and in nearly every measurable respect.

Conventional wisdom seems to accept the idea that too much churn and destruction now plague wide swaths of the American economy. The latest economic data, however, turns this conclusion on its head. The United States actually suffers from a problem of too little creation—not too much destruction—perhaps for the first time in its history. Our economic and job creation engine is rapidly slowing down.

America’s economic engine is losing steam.

Consider this: In spite of massive changes throughout the global economy, the rate at which businesses close has remained fairly steady in the United States over the past 40 years. In contrast, the rate of new business formation has plummeted, falling by half since the late 1970s—including a severe decline during the Great Recession. From small mom and pop storefronts to high tech startups, new businesses are simply scarcer than ever.

Why does this matter? New firms are the “creative” part of creative destruction. They help keep the economy in a constant state of rebirth, serving to replace dying industries, foster competition with incumbent companies, and produce new, higher wage jobs. When they disappear, the cycle of creative destruction falls out of balance. That is the core economic problem America faces today.

In short, we’ve lost the economic dynamism that powered U.S. prosperity for the past century.

No matter how you measure it, dynamism is fading from the map. As a result, we now have more inequality in and among our communities, lower wages for our workers, and less competition in our markets.

The Great Recession marked a historic turning point for the creation of new businesses.

Something jarring occurred with the onset of the Great Recession which threw the cycle of creation in the economy dramatically out of balance. For the first time, the United States experienced a collapse in new business creation so severe that companies were dying faster than they were being born.

Annual difference between firm births and deaths in the U.S. economy

The number of businesses being added to the economy has ground to a halt over time. During the recovery period from 2010 to 2014, the economy added just over 100,000 firms. Compare that to a prior era—the recovery from 1983 to 1987—when the size of the national economy was much smaller than it is today and the United States generated an increase of nearly half a million new businesses.

Declining dynamism is a driving force behind regional inequality.

It’s not simply that the rate and number of new businesses is declining; the preponderance of business creation is now intensely concentrated in a handful of metropolitan hubs that have managed to maintained resiliency amidst the national slowdown. We are now seeing historically low levels of new companies being born in many corners of America—from the industrial Midwest to the rural South to the urban centers of the Northeast.

From 2010 to 2014, five metro areas—New York, Miami, Los Angeles, Houston, and Dallas—produced as big of an increase in businesses as the rest of the nation combined.

The metro areas powering the national increase in firms over four recent expansions

Historically, one of America’s great strengths was its ability to generate economic activity relatively evenly throughout the country. Prior to 2008, the vast majority of metro areas throughout the country saw more businesses open than close every year. In fact, the number of metro areas adding businesses in a given year never fell below 80 percent—even during recessions. Everywhere you looked, the tide of American businesses was rising.

 

This trend reversed entirely with the Great Recession, when nearly nine out of ten metro areas started to shed businesses faster than they could open. Things aren’t close to returning to normal. Five years into the recovery, more than 60 percent of metro areas continued to lose more firms than they were creating. Only one in seven of them now keeps pace with the national startup rate.

Metro area firm birth and death rates

The rapid retreat of dynamism from all but the largest and fastest-growing metro areas intensifies the geographic inequality being felt across the country—and the most vulnerable areas are falling the furthest behind.

The age of diminished dynamism is shaping up to be the golden age of incumbency.

The average firm is now older than it has ever been, and a record 74% of the workforce is employed by one of these aging incumbents, who face less and less competition as the pipeline of new business formation dries up.

Between 1997 and 2012, two-thirds of America’s industries saw an increase in market concentration, and the four largest companies captured at least 25% of the market in nearly half of all industries in the United States.

Meanwhile, profits have reached exceptionally high levels as industries become more and more concentrated in the hands of a few dominant players.

 

Rising concentration across the economy means fewer opportunities for American workers.

People feel the impact of diminishing economic dynamism most acutely in the job market. New businesses are an important source of demand for workers and the primary generator of the jobs of the future.

In fact, new businesses are responsible for nearly all the net new jobs in the U.S. economy. Incumbent companies shed more workers than they hire in most years.

With fewer job options comes less leverage for workers, and slower wage growth. Labor force participation rates have taken a hit too.

It’s not too late to reverse these trends, but we must act now.

We are undoubtedly in the midst of a complicated and challenging era for the American economy, one which requires new and urgent responses from our policymakers.

However, the headwinds are strong. Policymakers must prepare a multifaceted offensive at every level of government.

Economic policy should be viewed through a new lens—with a focus on addressing geographic inequality and business creation first and foremost.

The retreat of dynamism is a one of the most urgent and fundamental economic challenges facing the new Congress and new Administration.

No one silver bullet can solve these problems—indeed we still know too little about their underlying causes. One thing is certain, though: If we can make the economy work again for entrepreneurs in a greater cross-section of America, we can start to rebuild the broken pathways to the American dream.

*  *  *

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TeethVillage88s's picture

Excellent Topic. I don't know of this source yet, but looks broad and deep. Very good.

Escrava Isaura's picture

Economic Innovation Group:

It’s not too late to reverse these trends, but we must act now.

However, in their own words, few paragraphs down:

we still know too little about their underlying causes.

So, if you don’t know what’s causing, how do you know it can be reverse?

 

 

TeethVillage88s's picture

Excellent. The guy wants future federal and other US Grants, Uni Grants.

"We still don;t know the causes?"

WTF?

"In fact, new businesses are responsible for nearly all the net new jobs in the U.S. economy. Incumbent companies shed more workers than they hire in most years."

- It's Very English!!

SILVERGEDDON's picture

Multinationals tilt the playing field. 

Rules, regulation, taxation, capital, banking, all benefit Big Corporate.

Ma and Pa Littletown USA get boot fucked right into the ground without a lot of luck, money, and determination.

Everyone else tanks, and then stands in line to be a Macburger flipper, Starfux latte lackey or Amazon drone.

American success story in reverse.  

Escrava Isaura's picture

America power, either from the left or right, don’t like small business, period. They either like to see them on the service industry or, put a chicken on their table and give them some Obamacare and tell them to get lost.  

 

TeethVillage88s's picture

Trump Admin did some lip service to small businesses last week or so.

But WTF?

Small Business programs have long existed in the DoD and would guess all of GSA & federal service...

- But who has reviewed this in the time from 2001? (GAO, Service IGs)
- G.W.B. admin opened up federal contracts... who will look into this...

- Since 2001... federal contracts went to Harry S. Truman kinds of bad Defense Contractors... BIG GUYS with monopolies/Insiders!

Harry Truman was appointed by President Woodrow Wilson to ferret out bad contractors in War Department prior to WWII... seems heroic... but a failure... lessons here!!!

Escrava Isaura's picture

The problem the right face is, if they are honest with themselves, they can’t connect the dots or all their free-market nonsense is lost. Let me give two examples of thousands of them:

1) Dana Priest and William K. Arkin described the scope of the privatized Deep State and the degree to which it has metastasized after the September 11 attacks. There are now 854,000 contract personnel with top-secret clearances — a number greater than that of top-secret-cleared civilian employees of the government.

2) According to the Farmers Weekly report below a staggering figure of nearly 70% of US soy bean value now comes from the US government. This has caused a 25% increase in soy planting in the US since 1998, and a consequent collapse in world oilseed prices.

https://www.organicconsumers.org/old_articles/gefood/govtsoyloans.php

 

TeethVillage88s's picture

Holy shit!

"1) Dana Priest and William K. Arkin described the scope of the privatized Deep State and the degree to which it has metastasized after the September 11 attacks. There are now 854,000 contract personnel with top-secret clearances — a number greater than that of top-secret-cleared civilian employees of the government. "

wow!

Heavy's picture

Looks like all those little poops headed for the drain there recently

BeanusCountus's picture

Relax everyone. It's the nature of small biz. Little heavy on closures right now, a few might buy some time with less regulations. Donald can help there. But face it, there are lots of terrible ideas that are opening businesses out there. Wish them all well and give them credit for the balls, but its how capitalism works.

ebworthen's picture

"Out of the frying pan into the fire."

While the banksters and the kleptoligarchy are running the show, you don't take risks.

Perhaps President Trump can change that.  Too many lawyers, regulations, and taxes.

King Tut's picture
King Tut (not verified) ebworthen Feb 1, 2017 9:40 PM

Simple - just hire a few Goldman Sachs guys- your business will pick right up

TeethVillage88s's picture

Declining Business Dynamism in the U.S. High-Technology Sector
http://www.kauffman.org/~/media/kauffman_org/research%20reports%20and%20...
2014 by the Ewing Marion Kauffman Foundation. All rights ... and in net job creation. But, recent trends point to sustained declines in business dynamism and in.

"The Secular Decline in Business Dynamism in the U.S." , Working ...
econweb.umd.edu/~haltiwan/DHJM_JEP_5_17_2013.pdf
decline in business dynamism is evident in a pronounced declining trend in the pace of ... We thank the Kauffman Foundation for financial support, Kristin.

Top Ten Signs of Declining Business Dynamism - University of ...
http://econweb.umd.edu/~haltiwan/Haltiwanger_Kauffman_Conference_August_...
Top Ten Signs of Declining Business Dynamism and Entrepreneurship in the U.S.* ... This paper was written for the Kauffman Foundation New Entrepreneurial ...

Declining Business Dynamism in the United States: A Look at States ...
https://www.brookings.edu/research/declining-business-dynamism-in-the-un...
May 5, 2014 ... Ian Hathaway and Robert Litan have found that entrepreneurialism and business dynamism has declined in all 50 states and in all but a ...

BUSINESS DYNAMICS STATISTICS BRIEFING: Job Creation ...
https://www.census.gov/ces/pdf/BDS_StatBrief7_Creation_Churning_Wages.pdf
The Business Dynamics Statistics (BDS) is a product of the U.S. Census Bureau ... Studies, with the partial support of the Ewing Marion Kauffman Foundation. 3.

Fewer start-ups in the high-tech sector? Actually, yes - CNBC.com
http://www.cnbc.com/2014/02/14/fewer-start-ups-in-the-high-tech-sector-a...
Feb 14, 2014 ... In two separate white papers from the Kauffman Foundation released this ... Business dynamism includes how fast firms and employees turn ...

High Growth Young Firms - National Bureau of Economic Research
www.nber.org/chapters/c13492.pdf
We thank the Kauffman Foundation for financial support. Any opinions and ... Studies of the role of business dynamics in output and productivity growth are ...

Cassandra.Hermes's picture

Sorry but America just shrank to West Coast and North East, everything else is no men land.

homericninjas's picture

We got the food, natures jaw dropping views, the Carharts and Cummins Ram diesels and like it that way. Congratulations are in order not apology.

TeethVillage88s's picture

Explain yourself or consider yourself... not relevant.

- Links
- Sources
- Charts
- Graphs
- Tables

What you got Mr. Opinion?

sixsigma cygnusatratus's picture

No surprise here.  We're at the tail end of the baby boomer generation's economic participation. Last person left gets to pay for all the entitlements and the previous generations' wreckless spending.

NurseRatched's picture

Any link to the bicycle helmet and trophy-of-participation generation? It seems as if risk has been outlawed for the Snowflake Generation - so why should we expect them to take a big financial risk like grandpa did after WWII?

TeamDepends's picture

That is because the progressives and their overlords almost, repeat almost, tapped us out. The election of Clinton 2.0 would have certainly been the death knell for the Republic. But now there is hope. And that is all we need, bitchez!

TeethVillage88s's picture

Money and Politics Bitchez!

No Term Limits Bitchez!

Soros has no master Bitichez!

Average Citizens Doesn't care Bitchez!

Circuses, Sports, Soccer Moms, TV, Computer Games, MTV, Reddit... Gladiators Bitchez!

- Declaration of Independence, US Constitution, US Culture, EU Culture, Australian Culture, Canadian Culture... Your history is flushed by Globalism, US Empire and FACTA Prove Dominance... World Money, World Govt is still within Reach... Cash Ban is next... plenty of plans in the works that you know about... Globalism and Corporatism may invade the Trump Admin... we may have a problem with SCOTUS

Not sure the link... ZH did the story on FACTA

http://www.zerohedge.com/news/2017-01-31/fatca-needs-go-unfortunately-fa...

Edit: Yep, Globalist, Elites, Wealthy, Money Trust,... they have all the control and demand 30-50% of your money in sales taxes, VAT taxes, Property Taxes, all taxes.

LOL... what unlimited Usury is like not a harvest of your wealth?

Nexus789's picture

That's what you get with a financialised and rentier economy. Debt talks and everything else goes to crap.

silverer's picture

The only rapid spurt in growth seems to be the protest industry. Never saw anything crop up so fast. Don't know if there's any pension for it yet, but the way it's looking, democrats want to be "lifer" protestors. Problem is, the only thing it produces is bad will.

TeethVillage88s's picture

Yeah, 20-30 years, maybe 40 years ago, protestors started to get paid... for union protest or Nuclear protest. What else?

Anyway... now we have European Type Protests in the USA about progressive Soros type stuff.

Native Indians need work... so why not protest against pipelines and Refineries... I guess.

silverer's picture

Yeah. They are fighting over money that's not even there. Lol.

TeethVillage88s's picture

Or... acting for money that is not there in the economy... and maybe not in the national economy... Yikes. Soros money is international...

Soros is Foreign Agent involved in all of local state, and National Politics

- Yikes!

Chipped ham's picture

Dynamism shminamism.

If you have a good job after the Bush/Obama debacles you're holding onto it with both hands. Fuck the Joneses. 

That's kinda what he's saying. The Joneses are slowing down. 

arby63's picture

Government. That's the cause.

Cancel any further research and put the money toward the wall.

grunk's picture

O/T

Berkeley snowflakes break up Milo's speech.

Entire campus is on lockdown.

Live coverage:

http://qa.up.anv.bz/dev/anvload.html?key=eyJ1IjoiaHR0cDovL2t0dnVsaXZlLWk...

 

TeethVillage88s's picture

= good budgets and liberties

silverer's picture

People that have experience and have been around long enough to understand what has changed in the US over the years just look around and shake their heads. I keep hearing "Why bother, the government just makes it harder and harder to succeed with all the regulations, permits, taxes, etc., then they hold their hand out for everything you manage to earn."

803Mastiff's picture

Every King has his reign then he dies.

TeethVillage88s's picture

Analysis Reveals US Small Businesses are Screwed.

I'm not up on this.

"60% Of US Metro Areas See More Businesses Close Than Open".

This is great grab. The Vocabulary is Important. Business Dynamism has meaning. Loss of opportunity for young businesses... Loss of Competitiveness... Loss of Ability against older monopolies. This is the Subject of the Studies.

This is The US Base. This is the Basis of US Liberty/Freedom!

This could be very important stat.

I'm not gonna guess how many metro areas are looked at. Big Cities have huge problems... but they also allow a kind of libertarianism... bars, cafes, art studio, art training places can do what they want in a kind of libertarian environment.

- There is a mix, Libertarianism, and... the need for rules, conservatism, budgets that make sense.. city people want both probably = good budgets and liberties

Vision (utopia, but practical for both Liberals & Conservatives)= good budgets and liberties

Bill of Rights's picture

Bama owner of this shit

QE crack addict's picture

we all know how this movie ends ... just in case you hail from the libtard camp let me spoil it for you ... it won't be a happy one.

Seasmoke's picture

As a entrepreneur and start up company from scratch. What I was able to do 3 times in the 90s and as recent as 2004 , I could never do again since 2007. The social contract was broken.

Archibald Buttle's picture

the social contract was broken.

pre-crisis i used to have some good arguments with friends about the social contract. everyone seemed to have an opinion about what exactly the contract entailed. it left plenty to argue about. noone, however, tossed the whole concept out the window at the outset.

but you are entirely right. the 2007/2008 era was when the social contract was torn up. and, in the true obushma spirit, it was done behind closed doors with no witnesses, and the rest of us chumps found out about it later.

wisehiney's picture

That's funny.

I was just walking around here singing...

 "They're going to miss me when I'm gone,

  They're going to miss me when I'm gone,

   They're going to miss me when I'm gone, gone, gone.

   They're going to miss me when I'm gone!" 

 

TeethVillage88s's picture

Propaganda?

Repetitive messages are best!

We can rule the world with drugs, sex, destruction of values, and ... idiocracracy repeated by government officials!!

Hell Yeah, Man!!

Let it Go's picture

Over the years big government has become toxic for small business. The owners of small businesses are burdened with spending countless hours trying to comply with the red tape rather than in earning a living. According to the Small Business Administration only 10% of Americans own a business and 80% of these are single self-employed businesses. More on the importance of small business in the article below.

http://brucewilds.blogspot.com/2016/12/small-business-has-been-under-assault.html

whatswhat1@yahoo.com's picture

Needless to say, we got a “goat rodeo”...

TeethVillage88s's picture

Article may not actually baffle people enough to garner... votes?

edited...

DaveA's picture

Men don't start businesses and work hard to get rich, they do it so they can get married and raise a family. Money is only a means to that end. But around 1960 we decided that men don't have families, women have families, from which they are free to expel the man while keeping all his financial assets. Or women can just get pregnant and expect all men to support their children through taxes.

Men were slow to react to this change, figuring "my sweetie pie wouldn't do that to me". But those men are old now, and wondering why their sons and grandsons would rather play Halo than go on a date. A young man entering the workforce today must wait decades to get married, and likely have to settle for a fat, used-up party slut with a couple of kids in tow. Not a lot of aspiring June Cleavers out there anymore.

Building a career or new business is hard work, and without the traditional reward, it's rarely worth the bother.

Tlön Uqbar's picture
Tlön Uqbar (not verified) DaveA Feb 1, 2017 11:49 PM

DaveA, you are really reaching.

First of all, men and women go in business so they don't have to work for one of those peter puffers who are married and have a family and take the easy way out.

Money is a privelege meant to be spent on Lotus Elises and cocaine. An entrepreneuer doesn't have to answer to no one  if they treat their employees fairly, bring home the bacon, and tell everyone else to go fuck the fuck off, that's their business.

You are mistaking morality with your pathetic wee-wee between your legs notion of today with the nostalgic 50's when if June left Ward she'd be out selling her pussy.

You're a fatalist asshole bitch. I don't have time for you people who whine all day about why your stupid whore is going to leave you anyhow. You're a fucking psychopath. And you are obviously cucked.

DaveA, go cry in your beer you pathetic bitch loser. Don't ever come here and tell me shit about your fucking problems you wimp. The way you talk you run a business as well as you run your own house.

Fuck you.

DaveA's picture

Wow, I really touched a nerve. Are you a dead-eyed party slut or a single guy who's fucked too many dead-eyed party sluts?

Archibald Buttle's picture

i never wanted to have a family, get married, or even for that matter get rich. not sure why, exactly, maybe i didnt see a future in it. now that i am getting too old to start over from scratch, prolly the best decisions i ever made. well maybe not the get rich part per se, but as a wise ZHer once said (wish i could give credit): thrift is our best weapon against them.