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The Small Story of 2012

This is the time of year to look back and reflect.  What happened in 2012?  A lot of things happened, and yet when we look at the political and economic situation it appears that almost nothing happened at all.  About US 1.6M jobs were added during the year, but growth (change in GDP) remains at a near-recession 2% or less.  Politically, the election produced the same President and Congress who remain mired in gridlock, currently unable to get out of the “Fiscal Cliff” trap of their own making.  Europe has gone from bad to somewhat worse, proving that austerity isn’t going to help anyone.

What should we make of this year?  Not much, really.  There was not a big story in politics or economics that is worth re-hashing.  But there is a small story that has not been told.  Where did those 1.6M jobs come from, anyway?

As discussed here previously, job growth has been leading economic growth consistently since just after the end of the official recession – improvement has been consistent, if slow, since the summer of 2010.  The official Bureau of Labor Statistics report has been noisy and unreliable, suggesting that changes are not coming in larger companies that are easy to find.  That’s where the ADP report, which measures actual payroll data, becomes even more useful.  The key is buried in the numbers.

Below is an ADP chart of employment by company size, normalized to January 2008 – the start of the last official recession and the point just before we lost 8M jobs.  It shows what a “restructuring” looks like, the kind of odd economic growth where employment leads the economy rather than lags it:
As you can see, the smallest companies of less than 20 employees have proven to be the most stable.  In fact, their total employment is already back to where it was before the last major downturn.  It’s hard to credit small companies with a lot of the job growth, given that they didn’t have the losses in the first place.  But to understand this we have to get into what it means to be a small company in the first place.

Companies of less than 20 employees rarely stay there.  Some fail and simply go away, and a lot more grow to be larger companies.  It is reasonable to assume that some of the improvement in the next highest bracket, 20-49 employees, comes from small companies that grew.

That’s not to say that the very largest aren’t starting to accelerate and hire people at a much more rapid clip.  But we can see that at the very smallest companies employment has been much stronger overall, and probably points to a lot of new businesses that are succeeding and growing.

While the curves have all been pointing upward in a fairly constant slope since 2010, this year was the year when they were believed.  The growth of 2011 kept on keepin’ on, and the gradual rise in consumer confidence certainly reflects this.  It also explains the re-election of President Obama, as predicted here at the start of the year. Apparently, enough of those jobs came in Ohio to make them happy with the current administration.

But the growth we are seeing comes from smaller companies.  It’s a small story written in a year when the big stories largely failed to add up to anything significant.  So let’s call 2012 the year of slow, steady, and small progress.

You won’t find that headline written in the big media, but that’s OK.  It’s not the only important story they’ve completely missed this year.

12 thoughts on “The Small Story of 2012

  1. Very interesting. I had heard that growth is coming with small businesses but it is good to see it laid out. Thanks.

  2. It’s not surprising at all, but it makes me wonder what people have to go through to get these businesses started.

    • Good point. I keep meaning to do some more research on overhead per employee, for example. I’ve been talking to employers about what they have to go through and it does seem that it might be streamlined a bit.

  3. The big story is that football causes brain injuries and playing it should be banned worldwide, especially in the United States. Hurting your brain is not a luxury good. ; )

    Better to drink a 6 pack and listen to classical music.

    • Well, I don’t want to ban football, but it’s clear that our awareness of the problem has increased dramatically and we now know just how bad it is. They’re working on it, and I hope good solutions can be found. In the meantime, yes, antique music goes well with beer, too. 🙂

  4. This is really no surprise since small firms are typically where we see the most growth in any situation. What is unique here was the loss of jobs at larger firms combined with the way job growth is, as you say, leading economic growth. This does point to a big turnaround in the economy and it would be very hard to track. What may be the most different this year and into 2013 is that we recognize this growth and start to rely on it.
    As far as streamlining hiring practices and so on, there is not much that can be done as far as I can tell. There will always be forms to fill out for taxes and proof of citizenship. They are not too onerous to most businesses. But I am no expert and I am sure there is more that can be done.

    • I agree that this is no surprise, but what I think is important is that it is the base on which we will continue to grow into 2013, yes. I predict more solid economic growth – ASSUMING the feds don’t mess things up. That’s the one big variable here and the real reason I can’t make a solid prediction yet.
      Thanks for your comments on employers. It would be good to look into, I think. There were some very interesting things on hiring/retaining talent on the ADP site that I was thinking about sharing, too.

  5. I have to say that I disappointed in the general theme of jobs improvement. I think it is just a bunch of happy talk. I would rather stick with negative information on the economy.

    Here’s the reason why.

    For a long time the general theme of Barataria has been that we are in a depression. Policies in place led to aggregate actions that caused the depression. The extent of the depression can be seen by the historically high unemployment rates for the population as a whole and for sub groups of the population. There is agreement that the prospects for younger people are not the great–getting the career they want and then progressing in the career. That dim view really applies to all who are unemployed and who have decided not to seek employment and to people who are unemployed.

    The economy is improving, but there are tens of millions who are hurting out there. The economy is improving. I agree with that, but I think it is happy talk.
    Look at it from the other side. If a Republic President had been just re-elected you would be making the same argument that I am. So I am in the loyal opposition. I am holding you accountable so you don’t just give us the same spin that the larger media is giving– that the economy is doing better.

    Barataria used to have some out the box thinking. Erik you criticized the markets for being like pigeons following the standard line and not thinking critically.

    Throughout 2012 Erik you’ve had the steady drumbeat of: things are getting a little better, here’s the jobs data. I think that is a partisan joke. It is just spin to help Obama.

    To me it is better to stick with the suffering in this economy. The African American who has no job and just got out of prison. The Hispanic American who has no job and is an illegal resident. The woman in the south making minimum wage. The recently divorced man who can’t find a job.

    • Let me take that as more of a challenge.
      What fascinates me about this story is that it has gone unreported elsewhere. Plus, the nature of the jobs gain, especially leading economic growth, underlines that this is an event better called “Depression”.
      OK, let’s have a resolution for 2013, then. What can be done for those who are being left behind – because as well (or marginally) as things are going the hard part is going to be coming up later. Who is left behind? What will it take to get them into this economy?
      I can think of two groups right away that are worth focusing on. The first are the young, which I have commented on before. The other group are those over about 50 who find themselves out of work.
      Here is the deal – finding good, useful information on these two groups will be hard. But I will try to do it.
      So I agree that we’ve beaten the “slow, steady growth” to death at this point. I think we have identified the source of this growth and know what to look for if it is to continue. How could this growth expand to be more inclusive? A better story.

  6. I think that is a very even handed response. I applaud you from the right side of the stage.

    In 1984 Governor Mario Cuomo said this in San Francisco at the Democratic National Convention:

    But the hard truth is that not everyone is sharing in this city’s splendor and glory. A shining city is perhaps all the President (Reagan) sees from the portico of the White House and the veranda of his ranch, where everyone seems to be doing well. But there’s another city; there’s another part to the shining the city; the part where some people can’t pay their mortgages, and most young people can’t afford one; where students can’t afford the education they need, and middle-class parents watch the dreams they hold for their children evaporate.

    In this part of the city there are more poor than ever, more families in trouble, more and more people who need help but can’t find it. Even worse: There are elderly people who tremble in the basements of the houses there. And there are people who sleep in the city streets, in the gutter, where the glitter doesn’t show. There are ghettos where thousands of young people, without a job or an education, give their lives away to drug dealers every day. There is despair, Mr. President, in the faces that you don’t see, in the places that you don’t visit in your shining city.

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