Business creation is the process by which new firms are formed. These start-ups bring a number of advantages to the economy — increased productivity, job creation, and a boost in innovation.
Historically, the rate of business formation tends to increase with unemployment. This is because competition might be weaker or inputs like labor or supplies may be cheaper in downturns.
The COVID-19 pandemic has brought a dramatic disruption to this trend. Until now, the nation’s startup rate had fallen steadily for four decades.
Since the pandemic, the rate of new (employer) business formation has surged in recent years. This is captured in a separate Census Bureau data set, Business Dynamics Statistics, or BDS.
High-propensity applications from likely employers are the first step toward actual firm formation. The BDS data tracks the movement of these applications from an EIN filing form to an actual employer business that will hire workers.
Total business applications in 2021 were the highest on record, a 53 percent jump above those filed in 2019 and 23 percent higher than those in 2020. This surge was broad-based, with application counts up across all industry sectors.
While there is no way to know how many of these expressions of entrepreneurial intent become firms months after they are filed, the surge in applications indicates that the economy is primed for firm creation. This will help fuel the economic recovery and provide a boost to the job market as well.