3. The small-business boom
One of the most unexpected pandemic winners might just turn out to be new small businesses.
Why it matters: The number of entrepreneurs starting a business easily hit a record high in 2020, according to a new analysis by University of Maryland economist John Haltiwanger. That's a surprising result, given the severity of the crisis.
The big picture: It's now much easier than it was in 2008 to start a small business selling goods or services online.
- By far the largest single sector of new business formation is "nonstore retailers," who account for one of every three new businesses formed over the pandemic.
- Be smart: Renting space on Instagram is a lot easier, and can scale a lot more quickly, than renting a storefront.
Physical businesses have been booming too — but largely in states where rents are relatively low, like Texas, Florida, and Georgia. Those states have seen much more new business formation than high-rent California, New York, and New Jersey.
- When the Wall Street Journal told the story of how businesses on one Chicago street are coping with the pandemic, it found that out of nearly 50 businesses on the strip, five had closed permanently — while 10 new businesses had arrived.
- Sectors seeing a lot of new openings include laundromats, trucking, and, possibly surprisingly, restaurants.
Of note: "The surge in applications for likely employer businesses is arguably not because of, but despite, the PPP program," writes Haltiwanger. After all, PPP money went only to old businesses, thereby giving them a competitive advantage with respect to anybody who wanted to start a new business after February 2020.
- Government help was also frequently slow to arrive, which implies that the real driver of new business formation was not the government but just the underlying wealth and hopefulness of individual Americans.
Between the lines: There's no solid data on how many small businesses closed during the recession. A recent Fed paper, however, suggests that about 130,ooo companies went out of business in the first year of the pandemic. That's up between a quarter and a third from normal levels, and much lower than many economists originally feared.
The bottom line: If the Fed's number is accurate, the total number of small businesses might well have gone up, not down, over the course of the pandemic. Either way, what's certain is that Americans have been starting small businesses at an unprecedented pace.