Troubling Signals for Entrepreneurship in the Latest Jobs Report

By at 2 June, 2023, 4:41 pm


by Raymond J. Keating – 

The employment report for May from the U.S. Bureau of Labor Statistics presented some potentially troubling signals.

First, it must be noted that two favorite takeaways from this report are in obvious contradiction. The report opens: “Total nonfarm payroll employment increased by 339,000 in May, and the unemployment rate rose by 0.3 percentage point to 3.7 percent…”

Hmmm. So, we experienced strong employment growth, but the unemployment rate increased? What’s the deal?

A Tale of Two Surveys

Well, as SBE Council has pointed out before, the monthly employment report offers data from two different surveys. The establishment survey provides the payroll numbers, while the household survey results are used not just to calculate the unemployment rate, but the far more important labor force participation rate and the employment-population ratio.

While the unemployment rate actually is a dicey measure for a variety of reasons, the results in this case are pretty straightforward, and stand in direct contradiction to the establishment survey. That is, according to the household survey, employment in May declined by 310,000, with the employment-population ratio dropping slightly from 60.4 percent in April to 60.3 percent in May.

While we have to wait and see which survey might be pointing in the right direction regarding the labor market, it’s worth keeping in mind that the household survey better captures small business and start-up activity. And that leads us to look at the latest data on self-employment in this survey.

The Decline in Self-Employment

The self-employed numbers in this monthly report capture people who say that self-employment is their main work, that is, they effectively are full-time entrepreneurs. These entrepreneurs can have employees or not, and are either unincorporated or incorporated.

As for unincorporated self-employed, since the data are seasonally adjusted, we can look month to month. Unfortunately, for three consecutive months now, the number of unincorporated self-employed have declined notably, from 10.119 million in February to 9.403 million in May. As noted in the following chart, the May 2023 level was the lowest since the depths of the pandemic.

Source: Federal Reserve Bank of St. Louis, FRED

Regarding incorporated self-employed, given that the data are not seasonally adjusted, we need to look back at the same time last year. Incorporated self-employed registered 6.823 million in May 2022 and fell to 6.706 million in May 2023. In fact, for three months in a row now, as seen in the following chart, the number of incorporated self-employed were down from a year earlier.

Source: Federal Reserve Bank of St. Louis, FRED

If we add in the unincorporated data (not seasonally adjusted), total self-employment (i.e., unincorporated plus incorporated) declined from 17.034 million in May 2022 to 16.22 million in May 2023.

The household survey in May gives us plenty to be concerned about regarding employment and entrepreneurship. Hopefully, these matters will turn around in coming months – although the White House and Congress are doing nothing that would aid matters on the policy front in order to encourage investment, risk-taking and entrepreneurship.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.


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