Small Businesses Create New Jobs

Here is the lead paragraph for this week's Economist story on the Rustbelt recovery. It is a perfect, perfect example of the process. Small businesses hire new employees when their order books are full. Yes, it is just that simple. Now is there anyone who can explain that simple fact of life to the Cowardly Lion?

"ACME INDUSTRIES is a small contract manufacturer with only ten big customers. But those customers are a cross-section of the industrial economy, spanning mining, oil, transport and construction. Right now, Acme’s order book is bulging. “Everyone is up across the board,” says Bob Clifford, the company’s head of sales and marketing.

In one corner of its factory just outside Chicago, three workers polish what looks like a steel Lego brick the size of a steamer trunk. This is designed to channel water underground at high pressure, and will go into natural-gas-drilling equipment. In another corner sit rows of hollow steel cylinders that will hold bearings inside the wheels of gigantic mining trucks being built in nearby Peoria. Mr Clifford points to several parts destined for diesel locomotives built by a subsidiary of Caterpillar a big maker of heavy equipment. Caterpillar is booming, and its ecosystem of suppliers across Illinois is “seeing a real trickle-down effect,” he says.

At the nadir of the recession Acme’s sales had fallen 20% and it had laid off ten of its 125 employees. Sales are back up, the head count is now up to 130, and Acme reckons it will hire 20 more people this year to handle the growing order book."

Study the Employment graph above carefully. It tells the story perfectly.