Jan 25, 2023 - Economy

The pandemic surge in entrepreneurship is still going strong

Data: U.S. Census Bureau Business Formation Statistics via Economic Innovation Group; Chart: Axios Visuals
Data: U.S. Census Bureau Business Formation Statistics via Economic Innovation Group; Chart: Axios Visuals

In the early years of the pandemic, Americans filed a historic number of applications to start new businesses — importantly, ones that were likely to employ other people.

  • New data shows that explosion of entrepreneurial activity continued last year, even as inflation and recession fears soared.

By the numbers: There were 1.7 million applications for new businesses that were likely to hire employees in 2022, according to the Economic Innovation Group, a bipartisan organization that analyzed data from the U.S. Census.

  • That's down slightly from 2021's all-time record of 1.8 million, but still well above pre-pandemic norms. Last year's applications are up nearly 28% from before the pandemic.

Why it matters: The lasting surge in applications could be a leading indicator of greater economic dynamism — more jobs, innovation and productivity advancements — all of which drive long-term growth.

  • What they're saying: "The steadiness in application levels exhibited over the course of 2022 offers optimism that the pandemic may have delivered a lasting, positive shock to American entrepreneurship," EIG's Daniel Newman and Kenan Fikri wrote.

The intrigue: Across most sectors, there are more applications for new firms, which are likely to employ more workers.

  • That includes industries that experienced boom times as consumers shifted their behavior, including transportation and warehousing; new business applications there are a whopping 51% above 2019 levels.
  • Just four sectors (out of 19 tracked by the Census Bureau) saw business applications last year at or below pre-pandemic levels, including agriculture and education.

In every single state, the number of these filings trumped pre-pandemic levels.

  • Regionally, the South is experiencing the biggest start-up boom relative to 2019, while the smallest increase since 2019 was seen in the Northeast.

The bottom line: The pandemic stirred up more American entrepreneurial ambitions than any other period on record. Incoming data will offer more clues about how many of these applications transform into full-fledged hiring businesses.

  • But looming threats of inflation and recession did not appear to dampen start-up hopes.

What to watch: "As the Federal Reserve continues tightening monetary policy and the probability of a recession rises, many of these new businesses — a significant chunk of which were likely founded by first-time entrepreneurs — may not survive," the researchers write.

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