As the U.S. locked down last spring in response to the first wave of the COVID-19 pandemic, measures of economic activity plummeted. The nation’s gross domestic product fell nearly 5 percent in the first quarter of 2020 and more than 30 percent in the following three months.
But even as output cratered in the second quarter last year, something surprising happened. One economic metric—new-business applications—began to rebound sharply. The surge continued until late in 2020, when it lost steam; but then it got going again.
The wave of new-business applications has been so strong that seven of the highest monthly totals ever in data collected by the federal government since 2004 occurred between July 2020 and now. There’s also been a rise in self-employment.
Making this surge even more remarkable are two facts: When the Great Recession hit, no similar jump in business starts occurred; and the longer-term trend has been decidedly downward, a decline in entrepreneurial activity bemoaned by economists over the last two decades.
New businesses in Rochester
While the federal government tallies business application numbers at the national and state levels on a weekly basis, county-level data are available only annually, so it’s not possible to say what’s occurred in the Rochester region this year. But for 2020, the data are clear: The local numbers overall reflect the same surprising upswing.
In Monroe County, business applications jumped 12.6 percent to 6,062—marking the first year that such filings in the county topped 6,000. The increase was even stronger than the 10.7 percent recorded statewide.
Monroe County’s increase was the highest among the region’s counties. Wyoming County logged an 8.3 percent increase, while filings were up 5.2 percent in Livingston County and 3.5 percent in Wayne County.
The trend was not consistent throughout the region, though. Ontario County, which in recent years has seen some of the most robust economic activity, posted only a 0.6 percent increase. Orleans County saw a 1.1 percent drop, Genesee County, a 2 percent decline, and Yates County’s applications dropped 4.6 percent.
Will it last?
Economic analysts who study business formation cite two key questions about the surge in new-business applications since the pandemic struck: Why has it been so different from the Great Recession, when business starts recovered only gradually, and is this truly a reversal of the long-term decline in the nation’s entrepreneurial activity?
The first question appears to have the clearer answer. The hundreds of billions of dollars in unemployment benefits, direct checks to households and other pandemic-related assistance prevented a financial crisis. After a sudden but short-lived plunge, stock values have soared, and home values are up sharply; as a result, the net worth of households nationwide has been unexpectedly strong. So, many people have been financially well-positioned to pursue a new-business idea.
Many also have spotted opportunity in the economic disruption caused by COVID, in particular the pivot to remote and hybrid work. The idea that the pandemic has brought some permanent changes to the economy underlies the belief that a new period of entrepreneurship and innovation may have begun.
John Haltiwanger, an economics professor at the University of Maryland and recipient of the 2020 Global Entrepreneurship Research Award, said in a recent interview with the American Enterprise Institute that “in some respects, what we’re seeing is an acceleration of pre-pandemic trends.” As an example, he points to retail trade, where over the last decade “e-commerce was rising while brick-and-mortar retail was losing market share, and now that’s just changed dramatically.”
But, he cautions, it remains to be seen whether this will produce a more innovative economy: “We just don’t know whether this is going to be a transitory surge in dynamism entrepreneurship, or if things have changed in such a way that indeed we’ll go back to the times when we had this pre-2000 dynamism and flexibility.”
Either way, Monroe County is part of a developing story about the future of the U.S. economy.
Paul Ericson is Rochester Beacon executive editor.