New Business Applications Increase in January

By at 13 February, 2023, 1:39 pm

by Raymond J. Keating –

According to the latest data from the U.S. Census Bureau, total new business applications grew by 0.9 percent in January versus the prior month, with high-propensity applications rising by 2.0 percent.

Keep in mind, that these are business applications, not actual business formations. As the Census Bureau notes, “The Business Application Series describe the business applications for tax IDs as indicated by applications for an Employer Identification Number (EIN) through filings of the IRS Form SS-4,” with high-propensity applications being those business applications that “have a high- propensity of turning into businesses with payroll.”

As noted in the above charts, both total and high-propensity business applications continue to run well above their pre-pandemic levels. Given the stagnation or decline in the levels of entrepreneurship and businesses in recent years, these trends in applications offer real hope that the U.S. economy can rebound in these areas, which will feed innovation and economic growth.

Unfortunately, Census measures on employer and nonemployer firms have a considerable, multi-year lag. However, the U.S. Bureau of Labor Statistics self-employment data capture fulltime entrepreneurship. In 2022, total self-employed (unincorporated and incorporated) registered 16.529 million. That was an all-time high in a complete data set going back to 2000. The previous high was 16.148 million in 2007.

The 2022 total of 16.529 million was up from the pre-pandemic 2019 level of 15,722 million, as well as from 15.535 million in 2020 and 16.072 million in 2021. As SBE Council has noted before, this points to great resiliency among American entrepreneurs.

However, it also must be noted that as a share of the civilian noninstitutional population (16 years of age and older), total self-employment registered 7.03 percent in 2006, falling to 5.96 percent in 2014, and then climbing to 6.26 percent in 2022. So, as a share of the working age population, the U.S. stands notably short of the 2006 level, as well as the levels prevailing from 2000 to 2007.

As we look at these data and trends, policymakers need to establish an environment conducive to starting up, building and investing in businesses. That means, in part, tax relief (such as reducing the capital gains tax, including indexing capital gains for inflation), regulatory relief, free trade, and immigration reforms that welcome entrepreneurs and workers.

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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