PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

New Business Applications Continue at Lofty Levels

By at 9 December, 2021, 12:14 pm

by Raymond J. Keating –

The U.S. Census Bureau served up its latest “Business Formation Statistics” report on December 8, and it showed that business applications for tax IDs continued to run at lofty levels in November 2021.

Business applications in November came in at 432,034 (seasonally adjusted). While that was down ever so slightly (-0.1 percent) from the previous month, as noted in the following chart, business applications have been running at robust levels starting not too long after the pandemic hit. Consider that in February 2020, applications registered 300,705.

A key subset within this data are high-propensity applications, which are applications that have a high likelihood of turning into businesses with employees. That also continued to run well ahead of pre-pandemic levels, coming in at 144,369 in November 2021, up by 0.8 percent versus the previous month. Again, in February 2020, these applications came in at 111,056.

Another part of this monthly report from the Census Bureau are projections regarding the number of business formations, based on business applications, that might occur four quarters down the road. As the Census Bureau explains:

“Projected Business Formations (within 4 quarters) for November 2021, adjusted for seasonal variation, were 31,931, an increase of 0.3 percent compared to October 2021. The projected business formations are forward looking, providing an estimate of the number of new business startups that will appear from the cohort of business applications in a given month. It does not provide an estimate of the total number of business startups that appeared within a specific month. In other words, the Census Bureau is projecting that 31,931 new business startups with payroll tax liabilities will form within 4 quarters of application from all the business applications filed during November 2021.”

In terms of actual business formations, as noted in the following chart, the latest data we have is from 2018.

Let’s hope that the Census projections turn out of be correct. Unfortunately, we simply don’t know at this point. As I pointed out in recent congressional testimony:

“The data on business applications provide hope for a recovery in entrepreneurship, which would feed into economic recovery and expansion. The historical relationship indicates that there is reason for hope here, although it also must be noted that a pandemic economy is uncharted waters, and with so many people losing their jobs, one has to wonder how many filed business applications out of desperation or as some kind of insurance.

“At the same time, the expansion of the ‘gig’ economy would support this data, as would more people positively considering entrepreneurship due to their pandemic experiences. Speaking of his own entrepreneurial journey, Walt Disney once said, ‘When you can’t get a job, you start your own business.’”

Especially given the economic devastation wrought by the pandemic on small business, the U.S. economy needs a major share of these business applications to be transformed into actual business formations.

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

 

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