Robust job growth in the second half of 2022, which accelerated in July, managed to lift employment back to pre-pandemic levels by refuting all predictions of a slowdown. All while inflation reached a 40-year peak!!
So, what’s underlying this rapid growth? And where is it most prevalent? Diane Swonk, Chief Economist of audit tax and advisory firm KPMG has answers, and she speaks of a “dynamic” economy where the massive employment surge obtained a big enough contribution from the small business boom!
Job Gains Surge That Kicked Off in July: A Look at the Statistics
In July 2022, public and private sector payrolls jumped by 57,000 and 471,000, respectively, across diverse sectors, like education, health, hospitality, leisure, business services, etc. Apart from these, manufacturing, construction, and mining continued adding to employment. As of November 2022, wages increased by 6.17% from previous year (source: U.S. Bureau of Economic Analysis). Although the household survey showed only 179,000 new jobs, the unemployment rate has dipped to 3.5%, as recorded in December 2022.
More recent data reveals that 223,000 more people were added to payrolls last December and there are still more than 10 million vacant positions!
What Caused the ‘New Wave’ in the US Job Market?
In a recent podcast interview, Diane shared her observations on the numbers, which she calls “extraordinary”. She points out that it’s been some time since the small business sector displayed innovation… in fact not after the 1990s or early 2000s. And the year 2020 marks the recurrence of new and high-quality business formation in full swing. Despite being small businesses, they reserve the potential to become bigger down the road, and that surge in business formation, as per Diane, “has accounted for more than half of the increase in new job openings.”
This wave of new business formation or entrepreneurship, which was clearly absent in the 2010s, is now back! This theory can be backed by an analysis of Census data by the Economic Innovation Group (EIG) that evidently implied a chunk of the mass’ choice of entrepreneurship over job hunting. Stats showed, 1.4 million Americans filed applications for starting new businesses in September 2021 itself. In fact, many of these businesses are likely to hire more than just founders and founding partners, which accounts for a majority of these openings.
Furthermore, the pandemic has silently played a role in the job surge. A shift to the work-from-home model proved a brick-and-mortar office is not always a necessity. In the meantime, the near-zero interest rates fuelled the venture capital financing to take advantage of the situation, enabling the founders to raise money.
In Diane’s words, “…Venture Capital came out like crazy to help fund everything from Life Sciences to better ways to connect in a work-from-home world”, which inevitably, “has made the US economy much more dynamic in recent years, and that’s where that sort of incremental, increase in job demand came from…”.
How “Dynamic” Does the US Economy Look Like in the Future?
It seems the times of start-up expansion frenzy might slow down in the forthcoming period due to the Fed’s efforts in cooling labor demand as well as the growing fears of recession. Even so, Diane has faith in the past two years of traction in the SMB sector that contains the capacity to evade imminent economic challenges.
According to Sharon Miller, President of Small Business/Head of Specialty Banking and Lending, Bank of America, “2023 will be a year of small business owners betting on themselves and focusing on the elements of business ownership within their control.” She further adds, “… through research and conversations with our clients, it’s clear that most business owners are resolute and optimistic heading into 2023.”
In this mix of current economic contraction, all this optimism indicates opportunities for continued growth, albeit at a slower pace, provided that the small businesses adapt to efficient and cost-effective measures, armed with technology solutions.
