PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

High Level of Business Births Continues

By at 1 February, 2024, 1:36 pm

SMALL BUSINESS INSIDER

by Raymond J. Keating –  

While assorted numbers have pointed to concerns regarding entrepreneurship in the U.S. over the past decade-and-a-half, recent numbers offer real hope that the entrepreneurial spirit persists among Americans.

As SBE Council has noted before (see the latest analysis), new business applications have jumped notably since the pandemic hit. We wrote:

“Average monthly business applications never hit 250,000 in a year from 2005 (start of the U.S. Census Bureau’s dataset) to 2016. In 2017 and 2018, the monthly average moved up to just over 290,000. And then in 2020, with the onset of the pandemic, the monthly average actually jumped to 365,230, and then subsequently have topped 400,000, coming in at approximately 449,000 in 2021, 421,000 in 2022, and 454,000 in 2023… Of course, the question is how many of these applications actually turn into businesses.”

Part of that answer lies in the U.S. Bureau of Labor Statistics quarterly “Business Employment Dynamics” report, which offers data on business births and deaths. This report actually includes quarterly births of new establishments, which feature not just new firms but different locations for the same business.  These numbers are helpful in many ways.

Business Births on the Rise

According to this latest report, during the second quarter of 2023, establishment births (seasonally adjusted) registered 332,000. That followed on 331,000 in the first quarter 2023, 344,000 in the fourth quarter 2022, 349,000 in the third quarter, 365,000 in the second quarter, and 349,000 in the first quarter. In 2021, the numbers again were above 300,000 in each quarter (308,000 in the first quarter, 351,000 in the second quarter, 359,000 in the third quarter, and 378,000 in the fourth quarter).

Consider that during the latest two years with complete data – that is, 2021 and 2022 – these were the only years in which the quarterly levels ever topped 300,000. This dataset dates back to 1993.

So, in the second quarter of 2023, we continued to see stepped up business births, which ties back to higher levels of business applications.

Business Deaths

By the way, business deaths also have stepped up. But given the risks and uncertainties of starting up and running businesses, it should be expected that business deaths will increase when births increase.

A key positive is that deaths remain below births. And that has been the case post-pandemic. The latest quarter that we have business deaths numbers for is the third quarter of 2022. In that quarter, there were 349,000 births and 294,000 deaths (down from 322,000 in the previous quarter).

Job Growth from Establishment Births

Finally, when looking at new businesses, it’s important to recognize that small businesses create the bulk of new jobs. The BLS noted:

“In the second quarter of 2023, the number of establishment births (a subset of the openings data) increased by 1,000 to a total of 332,000 establishments. These new establishments accounted for 1.0 million jobs, an increase of 71,000 jobs from the previous quarter.”

American entrepreneurs, though faced by substantial risk, uncertainties and costs, including those generated by government, remain a resilient bunch. Moreover, they continue to have access to critical tech tools and platforms, which help business owners in almost every aspect of running and growing a business. Policies must continue to support this dynamic, and the innovations that benefit small businesses as well as consumers.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.

 

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