Economic Innovation Group
First published July 2023
Early-stage business activity across the United States remains robust through the first half of 2023, as the pace of new business formation actually strengthened over last year. Individuals filed nearly 2.7 million applications to start a business between January and June of this year, a 5 percent increase over 2022 and a staggering 52 percent increase over the same period in 2019. One-third of those filings were for new businesses likely to hire employees—a key subset of applications from the Census Bureau’s Business Formation Statistics demonstrating a “high propensity” to hire staff, if and when the business becomes operational. The volume of likely employer applications also remained well above prepandemic levels, surpassing the total from the first six months of 2019 by 36 percent. Startups and young companies—particularly those likely to hire employees—play an outsized role in job creation and wage growth.
The pandemic jump-started a promising period of strong business formation across the United States, and the increased activity shows no sign of abating three years on. Business applications serve as a timely and forward-looking indicator of economic activity and growth. However, it typically takes several months for an application for a new Employer Identification Number (or EIN, the underlying variable tracked in the data) to actually turn into a new business, and only a fraction of applications typically complete the journey. For instance, Census projects that about 9 percent of all applications filed in June 2023 will eventually become operational within the next two years.
Here we highlight several major takeaways for business formation through the first half of 2023. We focus on applications from likely employers because of their crucial role in job creation. We make most comparisons to 2019 in order to explicitly highlight how the pandemic-era economy has dramatically differed from prior trends up to 2020 when the pandemic hit, and to emphasize the staying power of the startup surge.