The Challenger Job Market Index, a quarterly survey of approximately 3,000 job seekers, was out today with some new info on 2010 transitions into entrepreneurship.  It is surprising in that it reports a sizable decline in entry into business ownership in the first half of 2010, with only 3.7 percent of their sample opting to start their own business (down from 7.6 percent in the first half of 2009 and 9.6 over the last two quarters of 2009).

The natural question here is what does this all mean when put up to other statistics currently available?  Certainly a decline like this is not a positive development since it shows about the lowest rate of start-up activity in this survey since Challenger began collecting it (see related post by a colleague showing historic trends).  But at a time when job seekers are seeing record lengths of long-term unemployment and are likely very financially constrained, I can’t say that I am entirely surprised to see a decline in the percentage of the unemployed who are seeking other forms of employment besides starting their own business.  I think the press release from Challenger rightly identifies some of the opportunities this group might be facing as hiring has eased with existing employers and things like the credit crunch in lending. 

But do we expect to see a drop of half in the rate of new business formations in 2010?  No.  The latest data we have from the Kauffman Index which goes through December 2009 shows increasing rates of households reporting entry into entrepreneurship and as we’ve been documenting in other recent reports, many rates of entrepreneurship seem to be extremely steady.  What I wouldn’t be surprised to see in new data coming out on 2009 and 2010 is a moderate decline in employer business formations.  I expect these declines looking at trends from the Bureau of Labor Statistics or other not yet published leading indicators collected by the World Bank.  But a 50 percent decline has never been seen in government data collected on this topic in the United States. 

There is little doubt that when taken on the whole that there is an increase in necessity entrepreneurship and a possible decline in opportunity-driven entrepreneurship in the U.S. currently.  We’ll continue to look into these things more in the coming months in new papers in our Kauffman series on this topic, but the real question which we can’t answer currently is if there are new transformational companies being born today, as my colleague Dane Stangler has shown has occurred in past downturns. 

I’ll just end with a call for all my federal statistical agency colleagues to redouble the effort to get some more timely indicators on new business formation.  BLS currently leads the way with their BED and CPS-based statistics but I know Census is considering some new monthly measures and I suspect something similar might be possible at BLS.