A new data set from the U.S. Census Bureau proves that the end of last year followed a similar pattern to what experts were seeing throughout: Americans officially filed more applications for new businesses in 2020 than in any year prior.
End-of-year data show that in 2020, new business applications were up 24% from 2019 and were 51% higher than the 2010-2019 average. Applications were up in Pennsylvania by nearly 24% more than in 2019, and high-prosperity business applications — those identified by the Census Bureau to be the applications that are most likely to turn into businesses with paid employees — were up nearly 16% in the state compared to 2019.
Policy think tank Economic Innovation Group’s report on the boom offers some context: There was a rocky start to the year where many companies froze spending and millions of Americans lost work, essentially pausing all likely applications during that time. But in late summer and through the rest of the year, the new apps rate recovered and kept on going for a total just shy of 4.5 million applications.
Yes, the trend is an anomaly: This looks different than the last major recession in 2008-2009, wrote the report’s authors, Jimmy O’Donnell, Daniel Newman and Kenan Fikri.
This time around, economic fundamentals remain strong for many industries and households, especially those who are high earners. (A relevant reminder: The stock market is not the economy, and the U.S. is in the midst of a K-shaped recovery, where folks who were financially sound before the pandemic probably still are.) Housing, credit and financial institutions are strong in this crisis, unlike the most recent recession.
“Most recessions involve individuals being strapped for cash and financial markets being reluctant to provide loans, diminishing the prospects of starting a new business,” the researchers wrote. “Typical downturns also involve much more medium- to long-term uncertainty, whereas many expect the pandemic recovery to be relatively swift, even if the goalposts keep moving.”
The industry that picked up the most traction in 2020 was retail, the report found, especially in “non-storefront” retail, where entrepreneurs sell things directly to consumers. And certain parts of the country saw bigger increases in new business applications, like the South and Rust Belt, while states in the Pacific Northwest actually saw declines.
It will take time to tell how many of these business applications will turn into businesses, but sustaining “this healthy bump in entrepreneurship” will be essential to ongoing economic recovery, the report said.
“COVID-19 was a social, cultural, and emotional shock the likes of which we have not experienced for generations,” the authors wrote. “Becoming an entrepreneur is a deeply personal decision, and the pandemic may have delivered the push for many to embrace it.”
Have you started a business during the pandemic? Tell us about it.-30-