Census Report on Business Formation Shows Slowdown Since 2007

Summary of Study

Bottom Line: Business formation for businesses that will likely hire workers fell by 16% between 2007 and the first half of 2019. These small companies drive national entrepreneurship, innovation, hiring, and wealth formation. Their decline is due to a combination of factors and should be cause for concern among policymakers. 

Since 2007, the number of construction companies has fallen by 116,459 -- a 15% decline. There are 26,000 fewer small manufacturers and 54,045 fewer retailers that employ up to 20 people. 

On the other hand, the number of non-high-propensity business applications have roughly doubled over this period, perhaps as a consequence of the growing gig economy. 

The total number of business applications increased by nearly one percent in the second quarter over the first quarter of 2019, yet contracted in the Northeast. 

In total, in the second quarter of 2019, there were 866,000 business applications, 121,000 of which have planned wages, and 136,000 of which came from corporations. These are increases over the first quarter of the year, but -- in terms of applications with planned wages -- still down significantly from 2007. 

Economists cite many causes for the drop in business applications, including latent risk-aversion from the Great Recession, a decline in economic mobility, a shrinking labor force, and immigration restrictions. 

Read the full study HERE

Feature Charticle

Quarterly Business Applications

U.S. Census Bureau

Findings:

  • Between 2007 and the first half of 2019, applications to form businesses that would likely hire workers fell 16%.

  • Applications to form businesses that will likely not hire workers have continued to expand, though these don't have the same economic impact. 

  • The rate of business formation grew in the second quarter of 2019 in the Midwest, South, and West, yet contracted in the Northeast. 

Read the full study HERE.