Economic Trends
By Gene Koretz
Small Biz Saw a Glass Half Full
Before the terrorist attack on America clouded the future, at least one bellwether business sector was beginning to see a ray of sunshine.
Economist William C. Dunkelberg of the National Federation of Independent Business reports that its small-business optimism index, drawn from its monthly survey of members, jumped three points in August, to 101.5--its highest level in a year. Ordinarily, he says, such a strong move suggests that economic growth is about to accelerate.
Especially encouraging was the surge in those expecting the economy to strengthen within six months. Optimists now outstripped pessimists by 25 percentage points, the highest reading since 1992.
Since small business has accounted for much of the nation's employment growth, its hiring plans say a lot about the labor market outlook. And these perked up appreciably in August--with a net 18% of owners planning to boost payrolls in coming months.
Further, the share of respondents reporting hard-to-fill openings jumped to 30% from 25% in July, and a historically high 17% of owners still indicated that finding qualified workers was their No. 1 business problem.
The sales and earnings pictures also brightened. In recent months, reports of sales declines significantly outnumbered gains, but in August, the ranks of gainers and losers were roughly equal. As a result, "the profit picture improved substantially," says Dunkelberg. At the same time, the net share of owners expecting higher sales in coming months climbed to 18%.
Meanwhile, labor cost worries seemed to be abating a bit. Some 30% of small businesses raised compensation in recent months, but only 15% planned to do so in the coming months. Reflecting weak pricing power, relatively few owners have raised prices recently or were planning to do so.
In spite of their rising spirits, small concerns were playing it close to the chest last month. Many still saw their inventories as too high. And though there were signs that inventory liquidation was ending, few owners appeared interested in building stocks or boosting depressed capital spending.
Last month, small businesses felt the economy was poised to start growing again, says Dunkelberg, but were waiting for more evidence.
A Teenage Smoking Puzzle
From 1991 to 1997, after a steady 15-year decline, the teenage smoking rate in the U.S. unexpectedly rose by a third, to some 35% of all youths. In two recent studies, Jonathan Gruber and Jonathan Zinman of Massachusetts Institute of Technology try to unravel the causes of this jump.
Their research turns up some surprises. Smoking rose more among whites than blacks, they find, more in the suburbs than the cities, and more among teens with high grades and college-educated mothers. Thus, while adult smoking is strongly associated with lower socioeconomic status, that proved less true of teenage smoking.
Despite these surprising trends, the two economists find that they explain less than 10% of the overall rise in youth smoking, which occurred in all groups. A more likely cause is a sharp drop in cigarette prices sparked by a tobacco-industry price war in the early 1990s. But even this development, the authors report, can explain only 26% of the subsequent rise in smoking by high school seniors--and little of the smoking surge among younger teens, who are far less price-sensitive.
Although a large part of the puzzle remains unsolved, the good news is that youth smoking has begun falling again in the wake of dramatic cigarette price increases in recent years. The authors warn, however, that teen smoking is highly correlated with later adult smoking. Thus, they estimate that as much as half of the rise in youth smoking in the '90s may persist into adulthood, shortening the lives of more than a half-million people.
How Welfare to Work Worked
When Congress enacted welfare reforms in 1994, many critics saw them as draconian efforts to cut welfare rolls. The inevitable results, they predicted, would be high chronic unemployment for single mothers forced to seek work, low wages for those who found it, and stunted pay gains for the overall low-wage workforce.
As a new Urban Institute analysis demonstrates, however, none of these dire predictions came true. Between early 1994 and the first quarter of this year, reports economist Robert I. Lerman, as the employment ratio of all working-age Americans rose by less than three percentage points, the share of single moms with jobs soared from 59% to 74%--reducing joblessness for this group from 13% to less than 8%.
Even more surprising, these employment gains were matched by healthy pay increases. Over the seven-year period, Lerman calculates that the real (inflation-adjusted) median wage of single working mothers rose by nearly 14%, to $10 an hour.
To put this in perspective, although 15% of employed single mothers in 2001 were earning nothing five years ago, by early this year, the average working single mom took home 78% as much as the average worker. Meanwhile, other low-wage workers saw similar percentage increases.
Welfare reform worked so well in part because it occurred during an economic boom. The burning question today, however, is how much the skills and experience acquired by working moms will shield them from unemployment now that the economy has hit the skids.
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Copyright 2001 , by The McGraw-Hill Companies Inc. All rights reserved.
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