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More people in the US are starting businesses because of Covid-19

A worker stands in the doorway of a new salon under construction with a big window sign indicating it is hiring new workers.
REUTERS/Mike Blake
They're the boss.
  • Karen Ho
By Karen Ho

Global finance and economics reporter

Published

If you’re planning to shop from a small business this holiday season, there are many more of them to choose from, especially online.

American business applications skyrocketed in the third quarter of this year, and continue to grow, highlighting a shift in the US economy towards entrepreneurship and new startups during the pandemic.

The data from the US Census Bureau show significant growth for high-propensity businesses, the type that tend to eventually employ people.

The data are a count of the number of businesses that applied for the tax identifier known as an EIN or Employer Identification Number.

Startups’ effects on the economy

New businesses, also known as startups, are important indicators for the US economy because they are a major source of jobs, innovation, and competition.

Businesses are defined as high-propensity when they:

  1. Are a corporate entity
  2. Indicate they are hiring employees, purchasing a business, or changing their organizational type
  3. Have planned to pay wages, or
  4. Indicate they are a restaurant, manufacturing, retail, healthcare, or food service business.

Because of their job-creating potential, high-propensity businesses are of special interest to economists, business leaders, and policy makers.

When the US fell into a recession due to the coronavirus pandemic, high‐​propensity applications fell during the first and second quarters of this year, while business closures rose.

Many of these new businesses are digital

In the wake of these economic trends, many more Americans have become retail entrepreneurs, especially online. Between April and October of this year, the number of weekly applications for new, non-store retail businesses far outpaced every other kind of retail.

Non-store retail includes food trucks, vending machines, orders by mail, television home shopping channels like QVC.

Some of the reasons for this spike include:

  1. Economic necessity due to long-term unemployment and the need for new income sources
  2. Specific opportunities from the ongoing pandemic, such as mask manufacturing and sales;
  3. The ongoing growth in online shopping and direct-to-consumer brands;

For instance, there has been an explosion in new Etsy buyers and sellers this year.

The startup trend is continuing

This growth in American entrepreneurship is continuing into the fourth quarter. Data for the six-week period ending on Nov. 14 show there were more than 508,000 new business applications, with 34% of them for high-propensity businesses. Weekly increases in applications continue to be high in states like Georgia, Michigan, Louisiana, Mississippi, and Maryland.

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