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What America's Startup Boom Could Mean For The Economy – NPR

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Back in November, the Planet Money newsletter reported that — despite a deadly pandemic and an ugly recession — America was seeing a boom in the creation of new startups. We spoke with University of Maryland economist John Haltiwanger, one of the leading scholars of business formation. Now Haltiwanger has a new study out, and the trend is clear: “The surge continues,” Haltiwanger says. “We’re now convinced this wasn’t just a blip.”

Like so many other areas of the economy, applications for new businesses pulled back in the first half of 2020 but then snapped forward again like a slingshot. Not only was 2020 the best year on record for new business creation since the Census Bureau began tracking it in 2004, but applications for new businesses have continued to soar, through at least last month. In May, there were a half a million applications for new businesses; the second highest month on record, below only last July. In total, there have been more than six million filings for new businesses since the pandemic began. The boom can be seen in both businesses composed of only one self-employed person and businesses that the Census expects will employ multiple people.

Over the last year and half, we have been reshuffling how and where we work and shop; and that shift has created all sorts of opportunities for entrepreneurs. With the pandemic, it’s like someone ripped out an irrigation pipe for brick-and-mortar commerce and plugged it into virtual commerce. It’s brought a drought to face-to-face businesses, and a bounty to businesses you interact with on a digital screen. The retail sector alone, driven by e-commerce, accounts for about a third of all the new startup growth. In addition, trucking, warehousing, and delivery services are all seeing surges — which makes sense, as we’ve seen a massive shift of spending on in-person services to tangible goods that are bought online.

We’ve also seen the rise of remote work and a reshuffling of the population, from city centers to suburbs, and from traditional job centers to “Zoom Towns.” Where people go, they bring their dollars. It may help explain why the food and accommodation sector is the greatest area of growth. We’ve also seen huge growth in the types of businesses that can provide remote services.

[Editor’s note: This is an excerpt of Planet Money‘s newsletter. You can sign up here]

There are at least two potential theories for what’s going on. First, while the boom is undeniably good news, there is a slightly negative take: we’ve seen a surge in new businesses mainly because the pandemic forced two painful restructurings to the economy. It began by ravaging the face-to-face economy and creating an awkward marketplace where we could only do stuff six feet apart. This suffocated many existing businesses while providing oxygen for others, such as online retailers, video conferencing apps, drive-thrus, delivery services, mask and sanitizer companies, and the like. Yet, many of these new opportunities for pandemic-friendly businesses may prove to be only temporary. Many of them could die as we head back to normal.

Now that most of us are vaccinated, we’re releasing the pressure cooker of our pent-up demand for going out. It’s leading to the second major restructuring: new businesses — restaurants, bars, salons and so on — are growing out of the ashes of the businesses scorched by the pandemic. This is great news! It’s better than no new businesses. But it’s possible that we’re now just heading back to normal, as opposed to something new and better. Think of it like the economy doing a pendulum swing from a normal economy to a pandemic economy and back to a normal economy again.

It’s hard to completely rule out this Negative Nancy take. We don’t have many details about what exactly the new businesses created during the pandemic are doing, or how big they’re gonna get. More importantly, we still don’t have great data on how many and what kinds of businesses died over the last year, and whether these new businesses are merely just filling the massive hole created at the beginning of the pandemic. The data suggests the biggest surges occurred at the beginning and tail ends of the pandemic, which is consistent with the idea that this was a pendulum swing.

But Haltiwanger offers a second, more optimistic theory, which says this is about way more than just a pendulum swing: it’s a rocket ship to a better economy. As painful as the pandemic has been, he believes it has forced the business world to drop outdated ways of doing things and embrace technology in a new way. “I don’t think any of us had a clue that we could do so much business activity remotely,” Haltiwanger says. “That sparks all kinds of new ideas.”

The MIT economist Erik Brynjolfsson told us last year that history suggests there is “a lot of inertia in the way people work” and that “unless there’s a shock, most people will tend to continue to do things the old way.” The pandemic, he said, provided that shock. It’s forced businesses to fully embrace technologies that enable a whole raft of new business practices, including remote work. Moreover, he argued, these changes may finally result in real productivity growth after so many years of stagnation.

When Haltiwanger looks at the data on business creation, he sees signs that this pickup in productivity may be on the verge of happening. “I have been struck over the last six months at how much of a sustained increase this surge in new business applications has been,” he says. “Here’s the thing: when we’ve seen sustained increases like this in the past, it has boded well for job creation, innovation, and productivity growth in the United States.”

The legendary Harvard economist Joseph Schumpeter developed a concept known as creative destruction that may help explain what’s going on. It describes the cycle of business death and birth that remakes the economy into something more efficient and productive. Economists believe it’s a vital process to improve society’s living standards. As destructive as the pandemic has been, it’s possible we’ll look back and see it as the spark for creating a new and better economy.

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Reopening economy buoys B.C.’s job market – Business in Vancouver

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B.C.’s labour market outperformed most of the country in June with a 1.6% (42,100-person) monthly gain and outpaced the national increase of 1.2%.

The province moved through steps 1 and 2 of its restart plan, highlighted by the reopening of restaurant in-house dining and larger organized events, travel and other recreation. The labour market has fully recovered employment losses from the previous two months, exceeding pre-pandemic levels by 0.6%. The latter marks the best performance among all Canadian provinces, reflecting shallower economic restrictions from the pandemic, solid performances in the commodities and technology sectors and a robust housing market.

However, full-time work has similarly lagged, with levels 1.6% lower than in February 2020, while part-time work rose 9%. B.C.’s unemployment rate fell to 6.6% from 7% in May and marked the lowest level since the pandemic began.

Metro Vancouver performance was consistent with employment growth of 1.5%, although unemployment remained higher at 7.4% of the labour force.

There was strong rehiring for accommodation/foodservices (up 12%) employees as dining restrictions were largely lifted. This contributed half of the net monthly increase. Significant gains were also recorded in finance/insurance/real estate (up 4.1%), health care/social assistance (up 3%) and business/building/other support (up 5%). Gains align with broader business and office reopenings. A drop in resource employment and construction were partial offsets to services-driven growth.

Hiring momentum will continue with Stage 3 of the restart plan underway, which allows for larger events, fairs and trade shows, reopenings of casinos and normalization of fitness classes and gyms, while domestic tourism partly offsets international travel restrictions.

The Lower Mainland’s housing frenzy continued to cool through June as affordability erosion and satiation of demand pulled forward by the pandemic cut sales. Meanwhile, both buyers and sellers are likely taking a step back to pivoting attention to other activities as social restrictions ease.

Multiple Listing Service sales spanning Metro Vancouver and Abbotsford- Mission (Lower Mainland) reached 6,007 units last month. While still up a lofty 46% from a year ago, this is compared with a 217% increase in May. •

Bryan Yu is chief economist at Central 1 Credit Union.

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'Freak-Out' Factor Will Determine Delta's Impact on US Economy – BNN

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(Bloomberg) — The rapid spread of the delta variant has sown volatility in financial markets this week, but thus far economists are maintaining their forecasts for an historically strong U.S. recovery.

Key to their relative confidence: officials are unlikely to order renewed lockdowns, and most consumers won’t drastically alter their plans. Any change in that assessment, and bets are off.

“The delta variant is posing a growing risk, but it’s probably not to the point that we should be making big, negative changes in our outlook,” Claudia Sahm, a former Federal Reserve economist who’s now a senior fellow at the Jain Family Institute, said in an interview. The outbreak has largely affected the unvaccinated so far, but Sahm said if it keeps spreading, “we’re going to find out a lot more about how much of that impacts the vaccinated and how much it freaks them out.”

For now, the rough consensus is that spending, travel and business activity will only be affected at the margin. Even late last year, when waves of Covid-19 cases hit the U.S., the recovery continued apace.

U.S. GDP is on course to jump 6.6% this year, and quarterly growth rates will be handily beating the average of the past decade well into 2022, Bloomberg surveys of economists show.

Andrew Husby at Bloomberg Economics highlights three factors that give him some confidence:

  • While Covid-19 cases have been surging, hospitalizations and deaths haven’t
  • The biggest impact has been in areas of lesser economic importance, such as some southern U.S. states
  • Some of the groups most at risk are least likely to change behavior

Bloomberg Economics: What’s the Delta From Delta Variant? Not Much

Nationwide high-frequency data show that Americans continue to spend and eat out at restaurants, as seen from compilers including OpenTable. New York City last week saw demand for hotel rooms hit its highest since the pandemic hit.

Still, there are inklings of potential change: Los Angeles County has reimposed a mask mandate. Apple Inc. delayed its office reopening. In markets, longer-term Treasury yields — those most sensitive to the outlook for growth — on Thursday were heading for a fourth straight week of declines.

Following are the comments of a number of economists on the delta variant’s economic impact:

‘Fluid Situation’

“So far, we haven’t seen any impact in the U.S. when it comes to real-time data,” said Aneta Markowska, Jefferies chief U.S. economist, by phone. “In fact, it looks like momentum actually improved in June, with foot traffic in particular. And that requires the opposite of social distancing.”

If Covid-19 “spikes stay localized, it’s hard to imagine a big national impact. Is a school reopening in New York State or in California going to be delayed because of a localized outbreak in Louisiana? Probably not. Obviously, it’s a fluid situation. It changes the risk profile, but it doesn’t change the base case for the U.S. outlook.”

JPMorgan’s Caution

“The delta variant may impart a little more caution in consumer behavior,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., wrote in a note Thursday.

JPMorgan trimmed its estimate for consumer spending growth to 4.5% for the third quarter from 5% previously. Still, with inventory gains offering upside risks, Feroli left this quarter’s gross domestic product forecast unchanged at 8.3%.

Local Caseload

“I do not think the impact will be marginal,” said William Spriggs, chief economist at the AFL-CIO, in an email. Policy makers are underestimating how many people will remain home from work amid rising infections, and that it will hit prime-age workers hardest this time, he said.

“Even though the most-affected states are extremely unlikely to shut down, people stopped economic activity because of local caseload — not because of public orders. So, we could see retail sales continue to remain flat, as they have since March.”

Watch Schools

“The variant will do meaningful economic damage if it causes people to resume sheltering-in-place and forces schools to remain online when the school year starts in a few weeks,” Mark Zandi, chief economist at Moody’s Analytics, said in an email.

“Odds are uncomfortably high there will be other variants that are highly contagious, virulent, and elude our vaccines,” he said. But, “putting aside these dark scenarios, it remains highly unlikely the Delta variant would short-circuit the economic recovery.”

Vaccination Shield

“At least in the U.S., I just do not see the appetite for taking steps that would discernibly slow the economy — even mask mandates look like they will only be re-applied in a few places,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, in an email.

Stanley pointed out in a research note to clients that even though cases have risen at a faster-than-expected pace, nearly half of Americans are now fully vaccinated and more are seeking to be inoculated each day as public health efforts ramp up. That limits the risk of the new Covid-19 variant and helps assuage consumers, he said.

British Example

In the U.K., where the delta variant spread rapidly before it became prevalent in the U.S., “hospitalizations and deaths remain so far below where they were the last time cases were this high,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research.

“I don’t see much downside to the economy. Consumers remain flush with cash and spending continues apace. Inventories remain low and are likely to rebuilt in the months ahead, supporting manufacturing production. Homebuilders are working through backlogs, particularly now as construction costs have moderated, supporting residential investment. Capital spending intentions remain strong.”

©2021 Bloomberg L.P.

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Widening Circles – The Startup That’s Attracting Big Retail To The Circular Economy – Forbes

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The circular economy is no longer a novelty. Instead of buying a drill that will be used two or three times and then locked in a cupboard, increasing numbers of us are renting from our peers via apps.. And rather than making the choice between cheap fast fashion and much less affordable designer labels, millennials and  Generation Z’ers, in particular, are comfortable with buying premium brands secondhand. This is, by and large, a good thing – not least because it prevents an awful lot of stuff from piling into the nation’s landfill sites.    

The circular economy tends to be associated with the startup boom – companies that start out small and build an audience – but it seems bigger names are getting in on the act.,  

Witness Fat Llama, a British peer-to-peer rental company launched in 2017. This year the company launched a new enterprise platform aimed at allowing major retailers to offer a rental option to their customers. In the first instance, the focus is on furniture and the company has so far partnered with national brands, John Lewis, DFS, and Sofology. 

So what’s going on here exactly?  The first thing that has to be said is that Britons of a certain age are no strangers to renting high-ticket goods from High Street stores. For instance, track back to the 60s and 70s most consumers opted to pay for their color TVs through monthly rental deals rather than buying outright. It was a question of affordability back then and as wages rose and prices fell (relatively speaking), acquisition became the order of the day.  

Today, affordability may still be a factor. As the pandemic drags on many of us may well be reluctant to spend upfront on big-ticket items, such as furniture. Added that is the fact that here in the U.K., house purchase prices have risen beyond the reach of many first-time buyers. And if you’re renting an apartment on a short-term lease, maybe you would rather pay monthly for the furniture too. 

A Fundamental Shift 

These are situational factors, but  Fat Llama co-founder,  Chaz Englander believes there has been a more fundamental cultural and generational shift. Put simply, the millennial and generation Z cohorts are not that comfortable with a buy, discard forget approach to consumption. 

“Sustainability is an enormous issue,” Englander says. “People are no longer comfortable with the idea that you buy something and then throw it away. Maybe it goes to eBay or Gumtree for a while but ultimately it ends up in landfill.” 

As he sees it, people in their twenties are particularly interested in living sustainably and that desire to tread a bit more lightly on the planet is driving the circular economy as whole. Part of the trend is a demand for rental furniture, not just from specialist marketplaces but from big retail names.  Hence Fat Llama’s list of partners. 

But are big retailers – who after have done very well out of charging upfront for their products – really ready to embrace a new paradigm?

Adaptation

Fat Llama’s experience suggests that rather than resisting the sustainability trend, some companies have been proactively looking at how to adapt to changes in the consumer marketplace.  “We were approached by a household name about building an enterprise platform in 2019,” recalls Englander. “

On that occasion, Fat Llama said no, deciding instead to focus on its existing peer-to-peer business. But circumstances changed. “We decided it wasn’t something we want to work on at that point but then the pandemic happened and we lost about 80 percent of our transactions. So we decided to look again at a business-to-business solution.”

It wasn’t quite a case of pushing at an open door. Englander says that while strategists within retail organizations detected demand for rental options, financial directors tended to be a lot more cautious. But now it seems that strategies are indeed changing. Englander cites the example of Sofology – now designing products specifically for rent through its The Loop initiative.. “They have a metal frame which can be reupholstered and reused,” he says. 

On Trial

In the first instance, Fat Llama ran a trial with John Lewis. Although scheduled for eight weeks, the rental stock sold out in 48 hours. 

With that market validated, Fat Llama has developed a rental platform that reflects the brands of participating retailers and is looking ahead to further partnerships.  

But is there really a market trend here or just a temporary blip? And will increasing numbers of retailers turn to marketplace providers to open up new circular economy business lines? There are signs of wider changes afoot. Beyond Fat Llama,  department store chain Selfridges has also developed a rental offering in collaboration with lending company HURR. 

At this point, we’re probably looking at a grand experiment that may or may not signal a long-term market sea change but it’s certainly the case that retailers are seeing a need to innovate and perhaps also to partner with sharing economy companies.

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