Source: Bloomberg

The missing ingredient in America’s anemic economic recovery after 2009 has been business formation. Startups used to account for a very large share (and sometimes the majority) of job creation. Under the Obama Administration, though, jobs created by startups fell to the lowest level since records were kept.

There are any number of possible explanations for the paralysis of the small business sector, but the simplest explanation is that small businesses lacked confidence. As the chart shows, there is a reasonably close correspondence between the confidence index published by the National Federation of Independent Business and the number of jobs created by firms less than a year old. Now that small business confidence is just shy of the Reagan-era record, it seems reasonable to expect a lot more job-creation by startups.

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