Applications for setting up new businesses declined last month, with projections of future business formations also dropping, according to the latest data from the U.S. Census Bureau.
State-wise, the biggest upsurge was in Vermont. Alaska came in second, and Maine took the third spot. Utah saw the biggest drop, followed closely by Kentucky.
The group’s small-business optimism index remained below the 50-year average for the 33rd consecutive month in September. The uncertainty index rose on a monthly basis to hit the “highest reading” ever recorded.
“Uncertainty makes owners hesitant to invest in capital spending and inventory, especially as inflation and financing costs continue to put pressure on their bottom lines,” Dunkelberg said.
“Although some hope lies ahead in the holiday sales season, many Main Street owners are left questioning whether future business conditions will improve.”
While business-formation numbers look disappointing compared to a year ago, the larger historical picture does not paint a deep negative sentiment.
The financial recession that followed led to the numbers dropping to roughly around the 21,000–23,000 range between 2009 and 2020 for most months.
The COVID-19 pandemic crushed this to less than 16,000 by April 2020, which then swiftly rebounded to peak at 32,500 in January 2021.
Business-Formation Trends
Business application numbers are positively related to how many people quit their jobs, according to an Aug. 5 analysis by the St. Louis Fed.The finding is consistent with a conjecture put forward by economists Ryan Decker and John Haltiwanger that “individuals quit their jobs to start new businesses during the pandemic and Great Resignation period, driving up business formation.”
The strength of this relationship was found to have grown in magnitude between 2020 and 2023 during the pandemic as lockdowns eased, with each year showing a stronger correlation than the previous ones.
“However, business applications have remained high through 2024 relative to the 2010s—both on aggregate and within the work-from-home-friendly industries, like professional services, on which Decker and Haltiwanger focused—while job quits have returned to previous levels,” the analysis said.
“This suggests that the rise in job quits following the onset of the COVID-19 pandemic (i.e., the Great Resignation) cannot fully explain the persistent increase in applications for new businesses.”
The rate of growth is estimated to get back to normal after the COVID-19 pandemic-fueled growth spurt. This year could see almost 30,000 new businesses materialize, with industries such as restaurants, hotels, professional services, and health care leading the surge, it said.