Hopeful Levels of Business Applications Continue

By SBE Council at 17 January, 2023, 7:08 pm

by Raymond J. Keating –

The number of business applications (seasonally adjusted) moved down slightly in December 2022 compared to the previous month, according to latest report from the U.S. Census Bureau.

Specifically, total 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 0.3 percent, with high-propensity business applications (i.e., applications with a high propensity of turning into businesses with payroll) dropping by 2.2 percent in December.

In fact, new business applications have been drifting lower since mid-2021.

But what’s amazing is the fact that the levels of both total and high-propensity business applications have remained dramatically higher than where they were pre-pandemic. (See the following two charts.)

Source: Federal Reserve Bank of St. Louis, FRED

Source: Federal Reserve Bank of St. Louis, FRED

At this point, nearly three years removed from the onset of the pandemic and related shutdowns, one would expect to see business applications levels return to the general area of where they were pre-pandemic. But that hasn’t been the case. The following table breaks out data to further illustrate these trends.

New Business Applications for Select Months (Seasonally Adjusted)

No doubt, there are many and varying reasons for this, but counted among them must be a generally more positive attitude toward entrepreneurship, including an appreciation for the independence and control over one’s work and career decisions that come with owning and operating one’s own business. That could be a positive consequence for the otherwise tragic results tied to the pandemic.

But we still have to see if these increased applications carry through to the creation of operating businesses. We know that self-employment data has shown great resilience among fulltime entrepreneurs, but there is a long lag in terms of the Census Bureau’s more comprehensive data on employer and non-employer firms.

But as SBE Council has been saying for the past two years, there is great hope in these elevated business application numbers. Unfortunately, while most elected officials speak favorably of entrepreneurs and small businesses, Congress and the White House have been pushing an agenda of higher taxes, more regulation, protectionism, and increases in government spending that work against creating, building and investing in businesses. Rather than being encouraged by elected officials, entrepreneurs face actual and threatened burdens from government.

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.