Business Births and Expansions, 2009

The Census Bureau’s Statistics of U.S. Businesses series tracks establishment births and deaths by major industry. There is a lag of two to three years due to the time it takes to collect and process the data. The most recent data cover the period 2008-2009. Since that period covers the end of the Great Recession (December 2007 to June 2009), characteristics of businesses "rounding the corner" can be identified. The dataset is not a 100% complete picture of employment in Tennessee. It excludes non-employer businesses, railroads, animal and crop production, and most government entities. The data are complete back to 1997, making the only other comparative recession the one that lasted from March to November 2001. The data include information about both establishments and employment. A look at the establishment data for large establishments (over 500 employees) and all the rest reveals where job creation is the strongest.

Because employment is a lagging indicator, very few industries showed net positive employment gains in the year after the recession ended. However, there were 10,835 new businesses in Tennessee in 2009. Large employers accounted for 2,258 new businesses, while the majority (8,577) had fewer than 500 employees. The total number of business deaths in 2008 outnumbered new businesses by a substantial margin. The only sector with a net gain was the health care and social assistance sector with five more establishments in 2009 than existed in 2008. New businesses created 97,813 jobs in 2009. Large firms accounted for fewer than half of the new jobs with 44,838. Again it is important to point out that net job change for the period was -174,034 because business deaths and contractions far outweighed births and expansions.

Business expansions had a larger impact on employment in Tennessee than did new businesses. Expansions of existing businesses created 161,467 new jobs. Large employers once again accounted for fewer than half of the new jobs with 77,963. There were 6,929 large firms hiring new employees and 21,461 smaller firms. Smaller existing firms, on average, created four new jobs, while large existing firms created 11 new jobs each.

Net job growth over the 2008-2009 period occurred in four industrial sectors: utilities, educational services, health care and social services, and other industries, not classified. Health care and social services generated a net increase of 3,475 jobs through expansion of existing establishments. In fact, the number of new and closing establishments was fairly close, 1,139 new health care and social service establishments as opposed to 1,134 that closed during the year. The net job change due to establishment births and deaths, however, was significantly negative, -4,364. Net job gains were wholly explained by the fact that 30% of existing health care and social services establishments expanded employment by a total of 27,914 jobs.

The retail trade sector had the greatest amount of "churn," with 1,647 new businesses created and 2,281 ceasing to exist over the period. Job losses due to business deaths were more than offset by the gains for a net gain of 589. The retail sector lost overall, as there were 35,406 jobs lost through cutbacks at existing businesses. By far the largest net job loss was in the manufacturing sector with 52,000 jobs lost over the period. Large (500+ employees) firms lost nearly twice as many jobs as the smaller firms, 34,310 versus 17,690. The loss of jobs due to closing manufacturers outpaced the job gains from new ones by 6,894; however, workforce contractions at existing manufacturers were the major source of job losses, as 3,091 factories laid off 56,621 workers.

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* Randy Gustafson is director of the Tennessee State Data Center.

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Because employment is a lagging indicator, very few industries showed net positive employment gains in the year after the recession ended. However, there were 10,835 new businesses in Tennessee in 2009.