So far this year, new business applications - which are applications for a federal tax I.D. and tracked by the U.S. Census - continue to be at historically high levels.
Business applications have averaged about 420,000 per month through April in 2022 (click on the Census chart below to enlarge).
Although this is down from their all-time high in 2020, applications are still 40% higher than before the recession.
Most applications (about 70%) are from firms the Census calls "applications other than high propensity" (grey in the chart).
These are applications from businesses that are unlikely to have employees, such as freelancers, independent contractors, and other types of solopreneurs.
"High propensity applications" (yellow in the char) is Census speak for firms they think are likely to hire traditional employees.
As the chart illustrates, the share of solopreneur applications has steadily increased over the past decade.
Retail continues to be the industry with the most applications. This has been the case since the surge of applications started in 2020. Professional services comes in second, consistent with its position since the pandemic began.
As we pointed out earlier this year, only about 20% of applications for tax I.D.s result in a new business starting.
But the continuing surge in business applications means a corresponding surge in new employer small businesses, and solopreneurs.
We expect to see business applications continue to decline over the next year. Reversion to the mean is common after a major economic shock.
But we also expect new business applications and new business formation to continue to be higher than before the pandemic.
