I was puttering around this morning looking for non-Trump-search-warrant news, and noticed that the Census Bureau had just released its latest data on new business formation.
Business formation was up a bit in July, but basically it's been fairly flat for the past year.
But it's been flat at a rate about a third higher than before the pandemic. What's up with that? Why have we created about 300,000 more new businesses than we would have predicted back at the beginning of 2020?
The answer, of course, is that we haven't: a new business application isn't the same as actually starting a business. It just means someone is feeling optimistic. Plus you need to take into account the number of businesses that closed. The BLS does this using a survey, but it's way out of date because this information is slow to filter through:
What you see here is closer to the truth: During the pandemic a bunch of businesses closed and fewer new ones opened than usual. We made up for that in late 2020 with a surge of new businesses and fewer business closures. If you look at the net number compared to the pre-pandemic average, it was down by about 125,000 during the first quarter of the pandemic and up by 125,000 over the next three quarters.
And since then? Business births were healthy through the end of 2021, and applications for new businesses are still high. But we don't yet know about deaths, and the BLS forecasting model seems to have been wrecked by the pandemic. More than likely the net number of new businesses is still in good shape, but not as good as the Census data suggests.
I feel it's likely that every single community in America lost a few businesses that they really miss. I know we did. Others managed to hang on. I think some closed preemptively with the plan of starting back up when prospects looked better.
“Establishment Births and Deaths”
I suppose in a country where a corporation is nearly (?) a person that makes sense, but does the BLS actually use that terminology?
I'm not sure why Kevin is holding back the huzzahs! Yes, it is possible that higher applications don't translate to higher actual business starts, but there's a good chance it does. Nobody knew what effect having so many businesses close would have. So far indications are that we have more businesses. I'm pretty happy.
Hopefully Kevin will revisit this issue in 6 months.
At a workshop years ago, one speaker noted that about half of all business starts were restaurants, and that it typically takes a year or more to get to profitability (you need a regular clientele). It’s easy to underestimate the capital needed to survive until then, so restaurants account for a high percentage of business failures too. Restaurants were certainly conspicuous casualties of the pandemic, but I think restauranteurs are optimists, and will try for a comeback.