Record Surge In Business Formations As Economy Recovers From COVID

On Wednesday the Census updated business formation stats for Q3, and as indicated by high-frequency data from the Atlanta Fed, business formation exploded in Q3.  As shown in the first chart below, total business applications rocketed upwards by 1.57 million, a record increase. Stripping out businesses that are unlikely to result in hiring, the numbers are much smaller in absolute terms but still rose 79% to a record pace. Finally, applications for businesses with planned wages surged 70% from a record low in Q2, to the highest levels since 2008.

In all three instances, the recent behavior is a complete reversal of the post-Financial Crisis period, when the prolonged recession led to a huge decline in business starts. That’s a good sign for the breadth of the economic rebound, as business formation tends to lead to higher productivity thanks to more innovation and investment. Below we show changes in total business applications by state; Michigan, Illinois, and Georgia are the biggest winners, with applications more than doubling.  

Disclosure: This analysis was originally published in our evening report —The Closer — on 10/14/20.   more

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