The Capital Note: Surge in Entrepreneurship amid Pandemic By Daniel Tenreiro
https://www.nationalreview.com/2020/09/the-capital-note-surge-in-entrepreneurship-amid-pandemic/
Spike in New Business Formation The wreckage of the Covid pandemic is not enough to stop Americans from opening up new businesses. The Department of Commerce reported a massive spike in new-business applications in the third quarter. While partially a reflection of the backlog in applications that built up during the lockdowns earlier this year, the spike is a surprising sign of the ability of the U.S. economy to weather the storm of the pandemic.
It also shows how unusual this year’s recession is. After the 2008 financial crisis, new-firm formation fell by roughly 25 percent, bringing real per capita GDP growth down by 2.5 percent. Despite a massive decline in real GDP this year, new businesses have increased in quantity and quality, according to Goldman Sachs Research:
[N]ew business applications have surged in Q3, with “high-propensity to succeed” business applications—those with similar characteristics to those that have historically led to firm creation—reaching their highest quarterly level on record, following a sharp virus-driven decline in March and April.
In large part, the surge in business formation reflects the forceful policy response to the pandemic. Near-zero interest rates, as well as an increase in personal income thanks to the CARES Act, have made it relatively easy for entrepreneurs to open new firms. It’s also a response to the changes ushered in by the pandemic, such as remote work and the increasing digitization of services.
Along with good news on payrolls and vaccines, the business formation numbers suggest a relatively swift labor-market recovery: Goldman Sachs researchers expect the unemployment rate to drop to 7 percent by the end of this year and to 5.6 percent by the end of 2021.
Comments are closed.
