New Business Applications Still Running Hot … But Not as Hot

By at 16 July, 2022, 5:36 pm

by Raymond J. Keating – 

The best way to sum up the latest data on new business applications, as presented by the U.S. Census Bureau, might be to say that they’re still running hot, just not as hot as they had been. Or another way to put it: new business applications are cooling a bit, but still running hot. You get the idea.

For June, new business applications (i.e., “business applications for tax IDs as indicated by applications for an Employer Identification Number (EIN) through filings of the IRS Form SS-4”) declined by 2.5 percent compared to May, and that included a decline of 1.1 percent in high-propensity business applications (these are businesses likely to have payroll).

After some big spikes after the pandemic hit, new business applications have been gradually (though notably) declining since May 2021. However, it cannot be ignored that applications continue to run far ahead of where they stood before the pandemic hit. (See the following two charts.)

New Business Applications: Total, July 2004 to June 2022 (Seasonally Adjusted)

Source: U.S. Census Bureau


New Business Applications: High-Propensity, July 2004 to June 2022 (Seasonally Adjusted)

Source: U.S. Census Bureau

New business applications in June 2022 registered 410,348, versus 300,705 in February 2020 (seasonally adjusted data) – a 36.5 percent increase. And as for high-propensity applications, they came in at 135,770 in June 2022, versus 111,056 in February 2020 – a 22.3 percent increase.

Of course, while many of these business applications will not develop into actual businesses, the data point to an expected notable increase in business formation. That, of course, would be most welcome, and essential to U.S. economic growth now and in the future.

Unfortunately, there is a great deal working against actual new business formation, including raging inflation, rising recession expectations, and all tied into grossly misguided policymaking focused on higher taxes, increased regulatory burdens, and more government spending. It’s vital that these costs and obstacles be reduced or removed in order to free up and incentivize entrepreneurs and investors to create and grow businesses.

That will require policies to be turned in a completely different direction, namely, substantive and permanent tax and regulatory relief, advancing free trade, reining in government spending, and implementing monetary policy focused on price stability.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.



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