A drop in new entrepreneurs might be a good sign

@CNNMoney March 19, 2012: 4:19 PM ET
Entrepreneurship has been rising steadily for years. But recently, it has pulled back.

Entrepreneurship has been rising steadily for years. But recently, it has pulled back.

NEW YORK (CNNMoney) -- The rise in entrepreneurship seen in the United States during the recession hit a speed bump last year, according to an economic report that keeps a close eye on new firms.

The slight decline could be interpreted as yet another sign the economic recovery is under way, said the economist who authored the report, University of California Santa Cruz professor Rob Fairlie.

"Those people that started businesses out of necessity are going back to wage and salary work," he said. "And they come from all demographics and industries. It's across the board."

Last year, 320 out of 100,000 adults started businesses, down from 340 a year earlier, according to the report released Monday by the nonprofit Kauffman Foundation, which focuses on fostering the nation's entrepreneurial spirit.

The drop in the rate of new business creation was broad-based, and included men and women, all races and nearly every level of education.

The report also shows several longer-term trends. Older people, age 55 to 64, for example, are forming a larger share of America's entrepreneurs compared to 1996, the first year the study was conducted.

The rate of business creation by immigrants, 550 out of 100,000 last year, continues to be higher than the rate for those born in the United States (270 out of 100,000 last year).

Jobless numbers defy economic theory

The entrepreneurial rate for whites is slightly lower than it was in 1996, but it has risen for Asians, blacks and Hispanics. The sharpest increases have gone to Hispanics, who made up 22.9% of new entrepreneurs last year, up from about 10% in 1996.

The highest business creation rate also continues to belong to the least-educated. Those with less than a high school diploma have topped the charts since 2002, with 570 out of 100,000 starting businesses last year. And the rate rose more sharply than others since the start of the Great Recession. In the report, Fairlie noted this is likely "out of necessity." But it also dropped last year.

A geographical trend that's at least a decade long also continued in 2011, with states in the West and South showing the most entrepreneurial activity. Arizona, Texas and California led the charge, while the lowest rates were left to West Virginia and Pennsylvania.

The report uses a yearly federal survey of about half a million people -- adults aged 20 to 64 who start a business each month with 15 or more hours worked. To top of page

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