August 23, 2004

Building Blocks of the Boom

Jeff Cornwall notes the good news in this report from vFinance Investments, Inc. (press release). vFinance says it's Entrepreneurial Confidence Index increased 13 percent in the second quarter of 2004 as compared to the first quarter of 2004 and is up "an impressive 33 percent from the same quarter a year ago."

Entrepreneurial confidence - the willingness to take a risk and start a business - is the essential building block of an economic boom. I think you're already seeing it in the strong growth in employment over the past year or so as shown by the government's Household Survey, which captures the growth of the small-business/home-based business/independent-contractor segment of the economy that the government's Payroll Survey of large employers misses. That's why the media reports sluggish job growth (based on the Payroll Survey) while the Bush Boom has lead America to the highest total employment in its history. Here's an excerpt from the vFinance report:

Analysis of the relationship between the ECI and the general economy indicates that this surge in entrepreneurial confidence reflects the strong increase in employment that began in the first quarter of 2004. When employment increases, confidence in the economy rises. Confident entrepreneurs are more willing to take the risk of starting a new business secure in the knowledge that if they fail they will be able to find employment. Thus, the climb in the ECI in the second quarter reflects the acceleration of employment growth seen in the first and second quarters. To the extent that this increase in interest is turned into actual new businesses, this process should become self-reinforcing. The new businesses that are created will hire more employees helping to generate healthy employment growth that will create an environment in which more potential entrepreneurs feel confident enough to strike out on their own.