A Reason for Economic Optimism: Business Applications Take a Big Jump Up in January

By at 10 February, 2021, 7:11 pm

by Raymond J. Keating-

The U.S. Census Bureau’s latest numbers on business applications serve up some optimism in terms of where entrepreneurship and our economy might be headed.

First, what do these numbers tell us, and why should we care?

The Census’ business formation statistics tally up Employer Identification Number (EIN) applications across the United States. And as SBE Council has explained before, these EIN applications include those looking to start new businesses.

Two numbers earn the most attention, i.e., overall business applications, and high-propensity business applications. The latter are a subset that have a higher likelihood (based on an assortment of data and assumptions) to turn into businesses with employees. In general, these numbers offer rough, forward-looking measures of potential business startups.

A Surge to Start the New Year

The latest monthly report notes that seasonally adjusted business applications took a big jump higher in January – from 345,184 in December to 492,133 in January.

Within those numbers, high-propensity business applications also moved up markedly, from 116,641 in December to 164,691 in January.

Both of these moves in January were reversals of some downward trends in recent months. As for total business applications, after plunging in March and April, they bounced back nicely in the following three months. However, after hitting a peak in July, a steady decline followed through the end of the year. The same pattern held for high-propensity business applications. (See the following charts.)

Finally, compared to a year earlier, that is, pre-pandemic January 2020, total business applications for January 2021 were up considerably, i.e., again registering 492,133 in January 2021 versus 284,174 in January 2020.

High-propensity business applications were up as well, with the January 2021 level of 164,691 up notably from January 2020’s 104,168.

Why the Jump in Applications?

The optimism in these numbers likely reflect a wide array of plans, reactions and efforts. But two overarching possibilities are worth highlighting here. One would be those who have closed businesses due to the pandemic and its economic fallout, and plan to jump back in the entrepreneurial waters.

The second would be a group who weren’t entrepreneurs previously, but whether due to losing a job and not wanting to go through that feeling of helplessness again, or seeing opportunities for businesses thanks to a different work model (such as working remotely), they’re planning to go down the path of entrepreneurship.

Both of these cases, as well as so many others, must be encouraged and celebrated. After all, in the end, recovery and future growth – including economic, income and job growth – will rely heavily on entrepreneurship.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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