Business Establishment Births Remain High, But Declining

By at 25 April, 2024, 2:32 pm


by Raymond J. Keating –

In the latest “Business Employment Dynamics” report from the U.S. Bureau of Economic Analysis, the numbers on business establishment births point to a slowing, but levels remaining above their pre-pandemic levels.

One of the most hopeful signs for our economy since the pandemic has been that new business applications jumped to levels well above pre-pandemic numbers. (See, for example, this SBE Council report.) The key question, though, is: How many of those applications turn into actual businesses?

One measure of business formation is establishment births included in the “Business Employment Dynamics” report. However, “establishments” includes both new firms, and new establishments, or locations, for existing businesses. So, while this measure is not a straightforward gauge of new businesses being created, it does include business firm births.

In the few years running up to the pandemic, the quarterly (seasonally adjusted) business establishment births generally ran in the range of 235,000 to 270,000 range.

However, after a notable dip in the second quarter of 2020, the number of establishment births grew, and hit 308,000 in the first quarter of 2021. That climbed, and hit a recent high of 378,000 in the fourth quarter 2021.

Since the second quarter of 2022, though, business establishment births have been slowly sliding, from 365,000 in that second quarter 2022, to 332,000 in the second quarter 2023, and then 311,000 in the third quarter 2023, which is our latest read.

There are two basic angles to consider in terms of analyzing the 311,000 births for the third quarter of 2023:

● First, it’s the lowest number of births since the first quarter of 2021.

● Second, while sliding, the latest level remains above pre-pandemic numbers.

Looking ahead, will we see establishment births start growing again, or at least remain above the 300,000 mark, or will the recent decline continue?

A factor influencing that trend will be whether policymakers insist upon continuing recent measures that work against entrepreneurship and private investment (such as higher taxes, increased regulatory burdens, and protectionist trade policies), or turn to pro-growth policies (for example, tax and regulatory relief, and reducing governmental barriers to trade) that provide a foundation upon which entrepreneurship and investment can flourish.

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, The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist and The Weekly Economist III: Another 52 Quick Reads to Help You Think Like an Economist.


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