Newly-Formed Business Come Back Strong in Most Counties

When it comes to the number of business locations and of employment, things seem to be on the upswing, at least as of the most recent findings from September 2021, according to data from the Bureau of Labor Statistics. But good news on average for business locations, which should roughly track with office and retail use, isn’t cheerful for all cities or counties.

In the third quarter of 2020, the number of establishments was about 10.56 million. The same period in 2021 showed 11.02 million, or an increase of almost 4.4%. Similarly, the number of people employed was just short of 144.9 million, or again a 4.4% increase. The average weekly income was up 6.7% to $1,251.

However, averages aren’t everything or everyone, and trying to understand the mechanisms is important. First, look at the breakout by geographic sector. An analysis by the Economic Innovation Group (EIG) found that “total business establishments nationwide stood 7 percent above their pre-pandemic levels as of the third quarter of 2021,” which is a comparison between the third quarters of 2019 and 2021 (6.7% difference).

That’s fascinating because it shows that the number of business establishments increased between the third quarters of 2019 and 2020. Even with the pandemic in full swing, business establishments continued to increase, which seems to run counter to common expectations.

Office locations don’t immediately seem to be the primary source of growth. The latest data from Transwestern suggests that while there is welcome improvement in net absorption of office space, the sector isn’t taking a victory lap. But perhaps there is a partial explanation in the expansion of companies into flex space in suburbs. That would increase the number of locations even as employment went from 148.6 million in 2019 Q3 to 138.5 million in 2020 and 144.9 million in 2021. 

What might offer a better clue is geographic change and possibly an expansion of small businesses. EIG noted, “The South saw substantially faster growth in business establishments (9.4 percent) than the Midwest, Northeast, or West between Q3 2019 and Q3 2021. New York County (Manhattan) lost more business locations (4,695) between the end of 2019 and the third quarter of 2021 than any other county, while Queens, Detroit, and Baltimore also saw outright declines. In absolute terms, Los Angeles County (CA), Miami-Dade County (FL), and Maricopa County (AZ) led the country in establishments added, each growing by at least 10,000.”

It was small and mid-sized counties in the West and South that saw the big growth, which might be explained by the historically large number of small business formations that have been taking place while large migrations of people to those regions have been occurring. Growth was “particularly strong in professional services, social assistance, and trucking.”