While we don't miss the uncertainty of the pandemic, it did offer an opportunity to reset. I took up distance running and substituted books for television at night. I'm happy to report that I have mostly maintained those habits.
I'm also happy to see the U.S. small business community has learned to sustain a higher rate of activity. The rise in new business filings that began in 2020 initially looked like a lockdown quirk: Time away from day jobs allowed more people to explore new ventures, and the cushion of stimulus money didn't hurt. Though those effects are well in the past, new business applications are still holding at an high level.
The software firm Intuit QuickBooks publishes aggregated accounting data from its clients. They report that firms with up to nine employees grew their headcount by over 600,000 workers from January 2020 to August 2023, with a steady trend since. Younger firms witness their strongest job creation in their first five years, outpacing hiring by more seasoned establishments
The rise in formation data is also an artifact of the disruptions to small businesses. Some closed temporarily and are reopening under a new license. Others reflect a change in control as older owners retire by selling their ownership interests; the buyout may appear as a new business filing.
Small businesses are a vital component of the economy.
The news on nascent businesses is not entirely good. Intuit shows that average real revenue at very small businesses is in gradual decline, as they deal with higher costs and less fervent demand. Business bankruptcies are also on the rise. Much like consumer credit delinquencies, business defaults fell to unusually low levels as government support programs offered a lifeline during the COVID disruption. Now, they have returned to levels last seen in 2017. Estimates of business births and deaths are lagged, but they tell a story of all aspects of the establishment lifecycle stepping up, including closures.
New businesses are vital for the job creation and innovation that are needed to keep the economy growing productively. But new ventures entail risk, and success is not guaranteed. The higher rate of both formations and closures suggests the entrepreneurial economy is going the distance.
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