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The Do-It-Yourself Economy Just Hired 1 Million American Entrepreneurs

Self-employment has surged in the last few months

Animal spirits are returning to the American workforce.

The number of self-employed workers surged by 370,000 in May, according to the U.S. Labor Department's survey of households released Friday. And nearly 1 million workers have gone to work for themselves since just February.

The report is the latest sign that entrepreneurial activity is on the rise. The number of business startups rose in 32 of the 50 U.S. states last year, the Kansas City, Missouri-based Kauffman Foundation reported Thursday. The Kauffman Index of Startup Activity, which is an indicator of new business creation, had the biggest increase in the past two decades.

"It is evidence of a growing do-it-yourself economy," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ. "The market for self-employed workers is booming and this is a sign of a pickup in entrepreneurial activity."

Most big companies are focused on cost cutting to lift profits, even in good economic times, so many workers are choosing to go out on their own, Rupkey said.

Every month, the Labor Department puts out two surveys: the establishment survey, which gets most of the attention including the headline number of jobs created, and the household survey, from which the unemployment rate is derived.

Self-employment can mean lots of things: someone who works as a consultant while looking for more stable employment, or a freelance writer, or someone who starts a business with hopes of creating the next Facebook.

The more widely followed establishment survey could be "understating things because new business formation is rising" and some new firms aren't included, said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York.

There is reason for some caution in interpreting the data.

"That is a very volatile series," noted Daniel Silver, a JPMorgan Chase & Co. economist in New York.

And some of the strength could be a reversal from losses during a cold winter, said Jesse Rothstein, a former Labor Department chief economist now at the University of California at Berkeley.

Still, "if it reflects a resurgence in U.S. entrepreneurship, that would be terrific," said Gary Burtless, a Brookings Institution economist in Washington who previously was with the Labor Department. "That is one thing that has been conspicuously missing not only in the current recession, but for even a bit longer."

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