Entrepreneurship is on the rise in the United States, according to US Census Bureau data, with 5.1 million new business applications filed in 2022. That’s approximately 14,000 new businesses every day, making it the second-highest year on record, just behind 2021’s 5.4 million filings. The numbers remained well above pre-pandemic levels, with 3.5 million filed in 2019.
Out of those applications, 1.7 million were likely to employ workers, according to a report by the Economic Innovation Group (EIG), a bipartisan research organization. This marks the second-highest year on record, surpassing the 1.3 million filed in 2019. Furthermore, all 50 states saw an increase in the number of these applications compared to pre-pandemic levels.
“The steadiness in application levels exhibited over the course of 2022 offers optimism that the pandemic may have delivered a lasting, positive shock to American entrepreneurship,” wrote EIG’s Daniel Newman and Kenan Fikri in the report. While the pandemic caused a shift towards streaming entertainment, at-home fitness, food delivery, and e-commerce, established companies thought this shift would be permanent, resulting in mass hiring.
But now, companies in these industries such as Meta, Netflix, Amazon, DoorDash, and Peloton are experiencing layoffs. The surge in US entrepreneurship, on the other hand, persisted through inflation, supply chain disruptions, and recession fears, possibly indicating a lasting, positive consequence of the pandemic era.
Experts suggest several reasons for the spike in new business applications, including people starting businesses to make ends meet after losing their jobs in 2020, the need for self-employment flexibility for those with childcare responsibilities, workers joining the Great Resignation, and the idea that starting a business is the best shot at getting ahead financially as inflation rises.
The southern region of the US, particularly Mississippi, Alabama, and South Carolina, has seen the largest growth in new business applications, with filings rising by more than a third compared to 2019 levels. On a per capita basis, Wyoming, Delaware, and Florida were the leaders in applications last year. Transportation and warehousing, accommodation and food, and healthcare businesses have led the way in terms of industry.
While the need for self-employment due to remote schooling and other pandemic-related issues may be less relevant today, the 2022 data suggests a new normal is possible. “The nature and long-term impacts of the boom will become clearer over time,” said the EIG report. “But this surge of supply-side experimentation suggests that the pandemic rekindled American economic dynamism at least to some extent.”
However, not all new entrepreneurs will have an easy road ahead. According to EIG, startups are “notoriously vulnerable,” with roughly one in every seven businesses less than five years old failing in good years, and one in five failing in bad years. Additionally, if the US enters a recession, some businesses launched during that period could be “permanently scarred.”
“As the Federal Reserve continues tightening monetary policy and the probability of a recession rises, many of these new businesses — a significant chunk of which were likely founded by first-time entrepreneurs — may not survive,” warns the EIG report.
Overall, the increase in new business applications suggests that the pandemic may have sparked a lasting positive impact on American entrepreneurship. While some industries may have gotten ahead of themselves, leading to layoffs, new businesses have persisted, even in the face of inflation, supply chain disruptions, and recession fears.
It remains to be seen how many of these new businesses will ultimately succeed, but the surge in supply-side experimentation suggests that American economic dynamism has been rekindled, and that’s something to be optimistic about.
As the EIG report notes, “Entrepreneurship is a crucial driver of American prosperity and a wellspring of opportunity for individuals, communities, and entire regions.” The rise in entrepreneurship may lead to new innovations, jobs, and economic growth, ultimately benefiting society as a whole.