Business formation boom

The small business optimism index has been below its 50-year average for almost 2 years now in the US. Also, the percentage of small businesses planning to hire employees has decreased from a high of 33% in 2021 to 17% in Augusts 2023. Therefore, it’s interesting that a high number of people are starting businesses in this environment. Total business applications are around 1.3 million each quarter compared to 800 thousand per quarter in the years leading up to the pandemic. The data pertains wage paying businesses and excludes most sole proprietorships without employees. Business applications with a high likelihood of turning into a business with payroll and those that have a planned date for paying wages i.e., new businesses resulting in higher employment also continue to be high. Despite a sizeable share of business owners being pessimistic, business formation continues to boom.

Source: US Census Bureau, September 2023.