New business applications in the US are down more than 40%

An economy-wrecking pandemic does not encourage business creation.
An economy-wrecking pandemic does not encourage business creation.
Image: Reuters/Stephen Yang
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The US startup sector is sputtering. As large parts of the American economy remain closed amid the Covid-19 pandemic, the number of applications for new businesses has declined sharply in recent weeks, according to new data from the US Census.

In the last week of March, there were just 6,790 applications for new businesses that plan to hire workers. That was down from 11,720 applications from the same week in 2019, a decline of 42%.

The coronavirus outbreak has dealt a huge blow to the US economy. In the past four weeks, more than 17 million people have filed new jobless claims. Startups play a huge role in creating jobs, which are very much needed right now. The census data suggests newly formed businesses won’t be filling the void.

As of April 8, the census is releasing (for a limited time) weekly data on the creation of new businesses. The numbers are part of the census’s Business Formation Statistics, an “experimental data product” that looks at the state of business activity on the national and regional level, and until recently was only released quarterly. The data come from “employer identification numbers” filed with the IRS that are used to identify business entities.

The sharp dip in applications in the last week of this March is larger than any other decline for the same week from 2007 and 2020. The number of business applications plummeted in 2007-08, though not as sharply as they have recently.

Overall, the US economy has become less dynamic in recent years, with the share of new businesses (ones up to two years old) falling from over 25% in 2005 to 20% in 2018.

The decline in business applications was similar across regions, with the largest in the Northeast at 58%. The Midwest was at 45%, the South 38%, and the West 36%. The slowdown, along with the massive job losses, highlight what is likely just the beginning of the economic havoc wreaked by the pandemic.