The number of business starts within an industry often closely mirrors the number of business terminations within the same industry. Industries that have a higher count of business starts usually have a higher count of business terminations. This can be explained by the nature of the different industries. Generally, industries requiring a higher level of property, plant and equipment investment are less volatile than those with less of these requirements. These characteristics will be evident in the discussion that follows.
Net Business Formation
During 2004, business starts outnumbered business terminations by 1,456. Net business formation is calculated by subtracting the number of business terminations (7,753) from the number of business starts (9,209) recorded during the year. The 2004 gain in businesses reversed the trend of the previous two years. In 2003, the number of businesses declined by 3; during 2002 there was a net loss of 298.
Service providing industries, with a net gain of 1,345 businesses, bolstered the State's 2004 increase in business formations, providing evidence that the State is continuing to shift from a goods producing to a service providing economy. Among service providing sectors, the industries within the wholesale trade grouping had the greatest net gain. The wholesale trade sector is comprised of merchant wholesalers of durable and nondurable goods and electronic markets and agents and brokers. Electronic markets and agents and brokers led all subsectors in net business gain for the year, 234. The characteristics of businesses in the electronic markets and agents and brokers subsector help explain why this sector led the State in business formation. Establishments in this subsector act in the capacity of agents or brokers that operate using the Internet or other electronic means of marketing instead of using a sales force. This segment of the economy is comprised mostly of small establishments. In December 2004, over 90 percent of establishments classified in electronic markets and agents and brokers employed less than 5 employees. These businesses also have a lower level of property and equipment investment.
Goods producing sectors of the economy showed a net gain of 111 businesses in 2004. Of the four sectors that encompass the goods producing industries, construction recorded the greatest growth in number of businesses. Within the construction sector, specialty trade construction added the largest number, followed by construction of buildings. Manufacturing industries recorded a net loss of 69 businesses for the year, the largest decline among all industry groups. Within the manufacturing sector, fabricated metal product manufacturing had the greatest net loss, followed by machinery manufacturing, and plastics and rubber products manufacturing. The manufacturing sector's loss of businesses for the year was slightly higher than 2003's decline of 64, but down from the 2002 and 2001 figures of 138 and 139.
In 2004, 99.3 percent of Connecticut's business starts were in the private sector; the public sector accounted for only 63 new units. Service providing sectors of the economy accounted for 86.3 percent of the State total, while the goods producing sectors made up the other 13.7 percent. Among all industry sectors, the other services grouping had the largest number of starts accounting for 13.9 percent of the private sector total. The other services sector is comprised of businesses not specifically accounted for elsewhere in the classification system. Examples include personal care, dry cleaning and laundry, pet care, temporary parking, and dating services. The annual wage in this sector is one of the lowest among the industry sectors. Lower wages are a sign of lower education and training requirements and potentially higher turnover as workers seek advancements, representing a significant challenge to the success of businesses in this sector.
Within other services, private households had the highest total number of starts. This reflects the growing number of households that are employing domestic workers, often on a part-time basis. These private households may employ individuals such as cooks, maids, nannies, and butlers, and outside workers, such as gardeners, caretakers, and other maintenance workers.
Professional and technical services ranked second in business starts among industry sectors. Within this sector, computer systems design recorded the most business starts, followed by management and technical consulting services and legal services. Wholesale trade came in third among industry sectors.
Factors that play a role in a business remaining open include an ample supply of capital, a sufficiently trained/educated labor force, the location of the business, and general economic conditions. Even within the same industry, business success could vary significantly between areas of the State. The mix of industries within a particular region affects business survival rates.
Of the 7,753 businesses that closed their doors during 2004, 98.8 percent were privately owned; the remaining 91 were in the public sector. Service providing industries accounted for 85.2 percent of Connecticut's business terminations, while the goods producing sectors accounted for the other 14.8 percent. Among industry sectors, professional and technical services recorded the largest number of terminations. As they did for business starts, computer systems design businesses had the highest number of closings in the sector, followed by management and technical services and legal services. The industries in other services ranked second with 1,077 businesses closing their doors. Construction ranked third with 880 business closings.
Businesses that do not survive have not necessarily failed. Businesses close their doors for many different reasons, not all of them bad. While many establishments do go out of business due to a lack of profits or a poor business plan, many others are terminated following a profitable sale or merger or other transition that sustains the business in a new form. These transitions muddy somewhat the true counts of business starts and terminations, but these data nevertheless offer another perspective on our State's economy.
The Connecticut Department of Labor's Office of Research has recently released the 2005 edition of its Information for Workforce Investment Planning. This publication is an annual compilation and analysis of Connecticut economic and demographic data, by town, aggregated by Workforce Investment Area (WIA) for each of the State's five WIAs: Eastern, North Central, Northwest, South Central and Southwest.
For those within the Workforce Investment community, as well as for anyone looking for a central source of labor market information, the Information for Workforce Investment Planning - 2005 can provide answers to questions such as:
? How many Connecticut towns have experienced population growth of over ten percent since 2000?
A. Five: Goshen, Hampton, Mansfield, Oxford and Tolland
? What is the population density in Bridgeport, and how does it compare with that of Union?
A. Bridgeport (Southwest WIA) has Connecticut's highest population density, at 8,744.4, and Union (Eastern WIA) has the lowest, at 25.9 persons per square mile.
? Which Connecticut town had the highest unemployment rate in 2004, and which town had the lowest?
A. In 2004, the unemployment rate was highest in Hartford (North Central WIA), at 9.9 percent, and lowest in Colebrook (Northwest WIA), at 2.6 percent of the labor force.
? What size firms employ the largest percentage of workers in Connecticut?
A. Firms with 100 to 249 employees accounted for less than two percent of the total number of worksites, but they employed the highest percentage (18%) of workers among private concerns in Connecticut.
? Which industries reported the highest and which reported the lowest wages?
A. When total annual wages for each industry are divided by the annual average employment in that sector, the result is the annual average wage. In 2004, the Finance and Insurance industry recorded the highest annual average wage ($118,506); the lowest annual average wage was paid to workers in the Accommodation and Food Services industry ($16,600).
? The 2000 Census identifies three Connecticut towns with the greatest number of youths between 14 to 18 years of age. Can you name them? Which towns recorded the highest percentage of youths?
A. The towns with the greatest number of 14 to 18 year olds were Bridgeport, Hartford, and New Haven, with 10,297, 9,917, and 9,136 youths, respectively. The towns with the highest percentage of youths were Mansfield (11.1%) and East Hampton (8.7%).
? Is home ownership more likely in Hartford or Weston?
A. According to the 2000 Census, five towns had over half their population residing in renter-occupied housing: Hartford, New Haven, New London, New Britain, and Bridgeport. Four towns had the highest percentage (over 95%) of their population residing in owner-occupied housing: Weston, Killingworth, Durham, and Easton.
? Which towns recorded the largest number of new housing permits?
A. In 2004, the towns with the largest number of new housing permits issued were Danbury, Meriden, and Norwalk, with 398, 323, and 301 permits issued, respectively.
The Information for Workforce Investment Planning - 2005 contains the latest statistics available from the Connecticut Department of Labor as well as from other state and federal agencies. Also included are charts and thematic maps for selected topics. Divided into five publications, one for each of Connecticut's five WIAs, this publication is available at: http://www.ctdol.state.ct.us/lmi/misc/iwip.htm.
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|Published by the Connecticut Department of Labor, Office of Research
|Last Updated: December 5, 2005