Self-Employment Takes Biggest Hit in 15 Years

Forbes and Bloomberg discuss Labor Department statistics that show that the hours worked by the self-employed fell at a 15.5% annualized rate in the third quarter of 207, the steepest drop in 15 years. The subprime crisis may be the big culprit, since construction workers and mortgage brokers are often in the ranks of the self-employed.

Note that the findings of the BLS Household Survey conflict with the oft-commented-upon monthly employment report, which in 2007 kept showing rising employment among small businesses via its “birth-death model”, which is basically a statistical plug. Many including yours truly have been highly skeptical, given that it was pretty obvious that the construction sector was shedding workers at a rapid clip.

From Bloomberg:

The increase in U.S. unemployment that’s jeopardizing economic growth is being driven by a drop in the number of people working for themselves, government figures indicate….

The figures may be another indication of how the deepest real-estate slump in a quarter century is filtering through the economic statistics. The Labor Department said today that worker productivity grew more than forecast last quarter as hours for all employees, including those who work for themselves, fell at a 1.5 percent pace, the most in five years.

The number of people running their own businesses dropped by 365,000 last quarter, compared with the same period in 2006, according to separate Labor Department numbers.

The decline in the number of hours worked by the self- employed last quarter reflected a 9 percent annualized drop in employment combined with a 7 percent decrease in average weekly hours for those still with work, the department said.

The issue may also help resolve some discrepancies among various labor statistics, economists said.

The unemployment rate, calculated from the household survey that covers the self-employed, jumped 0.3 percentage point in December. The increase prompted some economists to predict the U.S. was already, or would soon be, in a recession.

Even as the jobless rate rose, revised figures from the survey of businesses, which doesn’t track single-employee companies, showed hiring accelerated on average from the third quarter to the last three months of the year. Payrolls dropped in January for the first time in more than four years.

“Self-employment, as only calculated by the household survey, is probably reflecting the slump in the subprime mortgage market,” said Michael Englund, chief economist at Action Economics LLC, a forecasting firm in Boulder, Colorado.

Many mortgage brokers involved in the subprime industry work for themselves, Englund said, citing anecdotal evidence and conversations with clients.

Self-employment may also help explain why first-time applications for jobless benefits have yet to reach levels normally associated with a weakening labor market. A four-week moving average of claims has ranged from 306,000 to 345,000 since July. Most economists believe it takes readings in excess of 350,000 to indicate an increase in firings.

Self-employed Americans, although they may file claims, are not eligible for benefits under the unemployment insurance system, according to the Labor Department.

“This could really help explain a lot of the conflicting signals in the data,” said Englund.

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