The Pandemic's Economic Impact Includes More Americans Starting Their Own Small Businesses

Though the American economy still looks bleak, there are silver linings.

We're now entering year three of the COVID-19 pandemic, and the U.S. economy is still struggling thanks to inflation, supply chain issues, and continually bad jobs numbers. However, small business creation has been an unexpected economic bright spot since the pandemic began, and pandemic-era entrepreneurship could be an important part of the economic recovery in 2022.

In 2021 (excluding data for December, which the U.S. Census Bureau has not yet released), an average of around 452,000 new business applications were filed monthly. That's a significant increase compared to 2019, when an average of roughly 293,000 new business applications were filed each month. Those numbers dipped in March and April 2020 before catapulting to over 550,000 in July 2020 and remaining above 2019 levels through the end of the year.

The 2021 data look especially promising because new businesses tend to hire employees. From January 2021 through the end of Q3, 1.4 million applications were filed to form businesses likely to hire workers, more than any other comparable recorded period. These so-called high propensity applications have been strong throughout the pandemic, with over 400,000 more filings in 2021 compared to the same point in 2019, and 255,000 more than at the same time in 2020.

A December 2021 Intuit QuickBooks survey predicted that up to 17 million new small businesses may be formed in 2022. Of those 17 million, Intuit estimated that 5.6 million will hire employees. Over 80 percent of survey respondents who were already considering opening a business reported that COVID-19 had sped up their plans.

"When the pandemic hit, we saw an unprecedented number of new businesses formed as millions of people spotted new opportunities brought on by the 'new normal' or reevaluated their priorities," explained Alex Chriss, executive vice president and general manager of the Small Business and Self-Employed Group at Intuit.

The nature of pandemic-era work has likely made it easier for entrepreneurial people to launch their ventures. "Compared to previous recessions, potential entrepreneurs now have more widely available broadband, greater digital fluency, and a more mature e-commerce marketplace," wrote Jeremy Hartman and Joseph Parilla for the Brookings Institution. "Today, it's much easier to translate an artisanal hobby or creative passion project into an online venture than it was in 2008." Online microbusinesses ballooned by 2.8 million in 2020 compared to 2019 levels, Hartman and Parilla note, and ownership of such firms "grew fastest among groups hit hardest by the economic fallout" of the pandemic's onset.

It's important to note that this growth comes on the heels of great pandemic-era devastation to America's preexisting small businesses. In the first year of the pandemic, roughly 200,000 establishments above historical averages closed permanently. Millions of small businesses had closed as of 2021 when taking temporary closures into account. Though not as severe as earlier estimates had predicted, this wave of difficulties undoubtedly sent the signal that the pandemic and government-imposed restrictions on businesses would not be kind to would-be entrepreneurs.

That's why it's reassuring to see such optimism so clearly fleshed out in business application numbers. Reason's Eric Boehm previously reported on pandemic-era small business creation, writing that "the number of new startups in the pipeline isn't just a silver lining," but "a way forward." Unlike the Great Recession, which Boehm notes "was the result of a banking collapse and credit crunch that made it more difficult for startups to borrow money," the economic climate is different this time around. There's more money flowing to startups, which will likely contribute to a more even recovery than that which followed 2008.

Small business creation isn't the silver bullet for our economic woes, but these numbers show that millions of Americans have taken stock of a volatile world and decided to take on the risks of entrepreneurship regardless. The American economy in 2022 will be better for their efforts.

Comments

[Mother's Lament]

Weren't a world record number of small businesses closed down and bankrupted over the last two years? Isn't this just some of those bankrupted business owners trying to make a fresh start?

People struggling to rebuild their lives after a government enforced disaster isn't exactly an indication of a hot economy. This is Shrike-level gaslighting.

[Moonrocks]

Is that more or less than the number of small businesses destroyed by the government using the pandemic as a pretext?

[Chumby]

Revenue from OnlyFans is considered income.

[mad.casual]

"I used to be a paralegal until I was deemed non-essential. My roommate Sophie was a receptionist and part-time waitress working her way to opening up a flower shop. Now we pose naked from the comfort of our apartment. A girl's gotta eat, right?" Progress! Women's Liberation!

[SierraLima]

Damn you Chumby, I was literally about to post that opening an OnlyFans doesn't count as opening a business in my book.

[Moderation4ever]

Good article. I think the pandemic will be a transition point in the world economy. So many things have and will continue to change. We are learning the importance of labor and in many cases underpriced labor is gone. We are learning that many jobs don't require a daily appearance at an office and can be done partially or completely on-line. Now we are learning that many small businesses were started. Just as the industrial revolution, and the dot coms changed the economy so will this pandemic.

[mad.casual]

Nazism turned post-war Germany's economy right around as well. GNP had almost doubled from 1925-1944.

[Moderation4ever]

No sure what point your trying to make?

I would point out that whatever gain Germany made came at a great cost, there country was devastated by war and part of it capture under the USSR influence. Slower gains focused on consumer's interested would likely have served Germany better.

[Mike Laursen]

Education is most definitely going to change. And that feeds into work changes, as more families decide to homeschool.

[Earth-based Human Skeptic]

Hundreds of thousands of people selling hand-made soap or starting Youtube channels about hemp are not the foundation for a modern economy.

[ElvisIsReal]

Yep. I'm certain the vast majority of these are tiny one-person internet startups. Which is fine, but we can't pretend these people are going to fill the gaps in the supply chain, for example.

[SierraLima]

The US economy hasn't produced much of anything of actual value in decades, just new ways to waste time (see Facebook and Google) and petty conviniences that might save you 10 seconds here and there. On that note, that's par for the course. I highly doubt new sawmills, building contractors, semiconductor fab facilities that produce things of actual value that are in short supply these days are opening in any appreciable numbers, if at all.

[Mike Laursen]

Not as bad as all that:

https://en.wikipedia.org/wiki/Manufacturing_in_the_United_States

"The United States is the world's third largest manufacturer (after the People's Republic of China and the European Union)"

"The largest manufacturing industries in the United States by revenue include petroleum, steel, automobiles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, and mining. The United States leads the world in airplane manufacturing. American companies such as Boeing, Cessna (see: Textron), Lockheed Martin (see: Skunk Works), and General Dynamics produce a vast majority of the world's civilian and military aircraft in factories stretching across the United States."

[mad.casual]

A December 2021 Intuit QuickBooks survey predicted that up to 17 million new small businesses may be formed in 2022. Of those 17 million, Intuit estimated that 5.6 million will hire employees.
...
Online microbusinesses ballooned by 2.8 million

This reads as "Between 11.4M and 14.2M 'shell corporations' cropped up in the first year of the Biden Administration." to me. Of note, I don't exactly have a problem with shell corporations inherently, but the idea that new business filings went up alone as some indicator of favorable economic times or broad economic freedom steals a few bases. Especially in a climate where wages are being pushed up and mandates are being put in place for companies with more than 100 employees.

I know of at least one business that the owner was considering spinning off two divisions who started filling out the paperwork the moment Biden issued the mask mandate. Same number of employees, three total businesses, no mandates, and where previously, any one division raising the total above 100 employees meant everyone had to wear masks, now any one business can rise above 100 without affecting the previous other divisions. Multiplied by the rumblings about insurers not covering COVID costs for unvaccinated individuals. Yay economy? Yay freedom?

[Dillinger]

>>>the U.S. economy is still struggling

was fine. then Brandon

[Sopater]

I'm among those who account for this statistic. Pray for us.

[mad.casual]

The proliferation of small businesses indicates that there are still enough people in the country with the backbone to at least try to turn things around.

I think this is optimistic about the motivations of all those people. The idea of the Federal Government forcing a sort of 'Corporate Balkanization' comes to mind. The Jews want to start their own Kosher Deli? Good. Much easier to shut down one deli rather than going around to a half-to-full dozen businesses who just happen to have Jewish accountants.

As I said below, certainly not to frown on the formation of new businesses, but the notion "The government slammed its fist down on the scales in 2020/21 and that generated a lot of new businesses, which is good." makes a lot of very bad assumptions.

[mad.casual]

I do not think that was the point of the article.

Right. I think several very important points were missed.

Necessity is the mother of invention.

You do realize that, in a very real context, you're describing government lockdowns as a 'necessity', right?

[ElvisIsReal]

I think he's saying the desperation the lockdowns caused created the necessity.

[mad.casual]

Ah, OK, government-induced desperation is the grandmother of invention. Much better. Thanks for clearing that up.

[mad.casual]

I know what he thinks he's trying to say. My point is, factually and objectively (i.e. in a very real context), his statement can be interpreted as 'Government lockdown is the mother of invention.' You, and he, may not agree with that statement but it's a valid, factually-supported interpretation of the statement. And I think you, and he and Reason, walking away thinking "Look at all these new business owners who recognize that necessity is the mother of invention!" is wildly optimistic. Especially in the post-"You didn't build that." era.

How likely do you think it will be for governors and elected officials to claim credit for creating all of these new businesses after they imposed lockdowns? If it gets them re-elected, how likely do you think it would be for such a statistic to support the "We have to destroy the democracy to save the democracy!" or the "Build Back Better!" narrative? Do we even know where most of these new businesses were incorporated or operate? All in Delaware or are 25% of them in Silicon Valley, 25% in SF, and 25% split between Portland and Seattle?

[Emmett Dalton]

Corrupt assholes in government will always be corrupt assholes in government. Not living your life how you want because you're worried about how the corrupt assholes in government will spin it if you do is next-level retarded.