While many are cautious about the state of the economy, it has not slowed the growth of new businesses. According to data from the U.S. Census Bureau, new business applications are actually on the rise — and by a significant margin.
A review of the data shows a 77% increase between Q2 and Q3 2020, plus an overall bump in rates from 2019 into 2020. End of year data is not available yet. This data is based on the number of new EIN (Employer Identification Number) applications in the country.
A closer look at the applications
While these numbers are promising, they are also open to interpretation. Many speculate that laid off employees from struggling industries may be exploring their own entrepreneurial ideas and launching their new businesses at this time. This was the case after the Great Recession roughly one decade ago.
Of note, roughly one-third of new applications were termed as High-Propensity Business Applications, which is a specific category related to payroll and hiring. This data suggests that many of the new businesses are startups, which have a high rate of failure. Many new entrepreneurs may return to their old industry or work in a part-time basis, which makes this data less reliable.
Adaptation is key
While measuring EIN applications shows promising signs for the economy, it is also worth nothing that new paperwork is filed whenever a business changes its structure or organization. Entrepreneurship rates decreased in recent years, so a sudden change may not be representative of the bigger picture. Additionally, many businesses are filing applications as they reorganize in the ever-changing landscape.