Two economic stories received big headlines the week of July 4. The Dow Jones industrial average hit a record high and the economy added 224,000 jobs in June. On the surface, the nation’s economy looks to be in great shape, especially if you own stocks.
But just as July 4 holiday beachgoers were concerned about what danger lurks beneath the water’s surface, we should be worried about below-the-surface turbulence not reported in these feel-good economic stories. While the Department of Labor reports June to be a strong month for job creation, it fails to report results for big businesses versus small businesses. For that information, we must turn to another jobs report.
The ADP National Employment Report is a highly respected private-sector assessment of the nation’s nonfarm private-sector payroll data. In theory, it measures the same state of jobs in the country as Department of Labor statistics, but its methodology yields results that can be considered far more accurate. The report analyzes the data for businesses with 50 or more employees and small businesses with 49 or fewer workers. As it turns out, the June jobs difference between big and small businesses is large and scary. According to the ADP June report, small businesses lost 23,000 total jobs last month.
A closer look at this data shows that small businesses with fewer than 20 employees — which comprise the vast majority of small businesses — shed 37,000 jobs while those having 20-49 workers added 14,000 jobs. These smallest of businesses are the canary in the coal mine.
Most net new jobs come from startups less than 5 years old with four or fewer employees. Today our country is having a crisis in new small-business startups. There is something very wrong with our economy that is being masked by big corporations still living off the giant and permanent 40 percent tax-rate cut they received from the 2017 tax law. This tax reform drove stocks higher primarily for the benefit of shareholders and corporate executives. But corporate job growth is now running out of gas, down on average about 23 percent compared to last year at this time.
Unfortunately, June was the second consecutive month of economic danger warnings coming from small businesses, which employ about half of all Americans. In May, ADP reported that small businesses with fewer than 20 employees, which make up about 67 percent of all businesses in the nation, shed 50,000 jobs. Small businesses shrinking by 87,000 jobs over two months should be newsworthy. Unfortunately, not only is the press missing this economic story, so are our elected leaders who can do something about this before we fall into a recession.
The key to any effort to promote the health of small businesses is to deliver on the promises made by proponents of the 2017 Tax Cuts and Jobs Act: Give the average family a raise to create more consumer demand for small-business goods and services, and promote entrepreneurship and small-business growth through proper tax policy.
The $4,000 extra income for families promised by the 2017 tax law never materialized. In fact, half of all American families have less wealth today than they did 30 years ago. Likewise, a poll by Businesses for Responsible Tax Reform found that 72 percent of small-business owners say the 2017 tax law had either no positive effect on their business or a negative effect.
For the sake of our economy, we must revisit the 2017 tax reform and do it right this time. For families we must lower the cost of health care, education and child care while removing mountains of counter-productive college debt. All this will spur economic growth in our local communities. To inspire entrepreneurship and help small businesses we could make the first $25,000 in small-business profit tax-free or double the startup tax deduction for small businesses. To pay for this we can start by rolling back the 2017 tax cuts for corporations and the super wealthy.
The danger beneath this shimmering economy’s surface is real. It’s time for politicians and elected leaders to heed the warnings.