New Startup Activity Hits Record Low

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The number of out-of-work executives who have decided to take the plunge and start their own businesses hit an all time low in the first half of 2010, according to a report released this week.

Only 3.7% of job seekers opted to start their own businesses in the first two quarters, down from 7.6% in the same period a year ago, according to a survey by outplacement firm Challenger, Gray & Christmas. The average startup rate is at its lowest level since the firm began collecting data in 1986.

The startup activity data is part of the Challenger Job Market Index, which polls 3,000 job seekers each quarter, most of them former managers and executives.

The decline in startup activity could be a result of an improving job market, or of economic uncertainty, which scares would-be entrepreneurs away, according to John A. Challenger, the firm’s CEO.

“Many small business owners are increasingly pessimistic about business conditions and still find it difficult to get a loan,” said Challenger, in a statement. “Right now, we are in the early stages of recovery when the fundamentals of the economy are still pretty shaky, but employers are just starting to add workers back to their payrolls.”

Earlier this month, the Kauffman Foundation, which promotes entrepreneurship, reported that job growth in the U.S. is driven almost entirely by startups.

Between 1977 and 2005, existing firms lost an average of 1 million jobs per year, while startups added an average of 3 million jobs per year. The Foundation also said that startups kept adding jobs, even during recessions.

The U.S. unemployment rate stood at 9.3% in May, according to the Bureau of Labor Statistics.

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