New businesses are vital for our economy. Not only do they create jobs, but they also add vitality and new ideas to the economy. How does the rate of new business formation compare today to past years?
- first, new business formation is very cyclical – falling during recessions but rising when economy improves
- new business formation took a big hit during the Great Recession, and has recovered since then
- but – hasn’t fully recovered – new firm creation as a % of all firms is still lower today than prior to the Great Recession
- why – several potential reasons – higher standards for lending, lingering worries from the recession for taking risk, more concentration in many industries
- as might expect, fastest new business formation is taking place in the tech sector – but that sector is one of the slowest in net job creation