By Ian Swanson - 05/20/10 10:00 AM EDT
More entrepreneurs launched new businesses in 2009 than at any other time in the past 14 years, according to a study released Thursday.
The figures from the Kauffman Index of Entrepreneurial Activity report that entrepreneurs have remained a strength of the U.S. economy amid one of the worst recessions on record.
For policymakers, the news about these small entrepreneurs has huge implications.
A report this week by the Joint Economic Committee (JEC) found that small businesses continue to face tight lending standards that are limiting their hiring. It blamed a shortage of credit, reporting that tight lending standards banks imposed during the recession have not been lifted.
Entrepreneurial businesses launched in 2009 may not have been affected by a credit crunch, according to Stangler. Such businesses are often started with cash by the entrepreneurs behind them. Families and friends of entrepreneurs also often provide the initial loans that get new businesses off the ground, he said.
As the businesses grow, however, they’ll increasingly need credit from banks to hire more workers, according to Stangler.
That could be a significant political issue for Democrats for a couple of reasons.
The party is hoping that strong job-creation numbers this summer and fall will boost its hopes of retaining majorities in the House and Senate. It needs businesses of all sizes to pick up hiring, and a lack of credit could slow job growth. A credit crunch could cast clouds over the recovery that, in turn, could hurt Democrats at the polls.
Big banks are also a useful target for Democrats, who are already hitting Wall Street banks hard over the financial reform legislation moving through the Senate. Democrats feel they’ve built momentum on the issue, and blaming bank policies for cutting into jobs could be another political winner.
The JEC reported that small businesses have limited their hiring because they continue to face tight lending standards. While small-business hiring has declined, hiring by mid-size and large businesses began to increase in the middle of 2009.
“Small business is the job-creation engine that powers this economy, but this report shows that tighter lending standards are making it hard for that engine to get in gear,” said Rep. Carolyn Maloney (D-N.Y.), chairwoman of the JEC.
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The economy created 290,000 jobs in April, but the unemployment rate actually rose to 9.9 percent. The dynamic was created by hundreds of thousands of workers returning to the labor pool after they previously gave up looking for work.
Their return will put pressure on the unemployment number to rise.
The increase in the number of businesses launched last year could be related to the recession and high unemployment. Some jobless workers likely launched their own businesses as they struggled to find work.
“As people got more discouraged, it’s possible they take things into their own hands,” Stangler said.
He also believes the economic turbulence of the last two years undercut confidence in U.S. companies.
The Kauffman report also puts the spotlight on the role immigrants to the United States continue to have in creating new businesses and sparking innovation in the U.S. economy.
While the entrepreneurial activity rate for immigrants declined slightly in 2009 from 2008, around 510 out of 100,000 immigrants to the U.S. started a business each month in 2009, compared with about 300 out of every 100,000 native-born Americans, according to the report.