Economic Perspectives - 02/14/25

Last week's Perspectives section examined new business applications by industry. This week we will examine new business applications by state. Understanding trends in new business applications at the state level may help us understand where new jobs creation may occur since a business application is the first step in creating a new business.

• Data is from the Census Bureau.

• Data is as of 12/31/24.

• Four areas will be examined.

  • Total new business applications by state.

  • Growth in new business applications by State over one year and five years.

  • Total new business applications as a percentage of total jobs by state.

    • Five years ago (2019)

    • Current (2024)

  • The percentage point change from five years ago.

• It should come as no surprise that the states with the largest populations had the most new business applications but it was not a one-for-one relationship between population size and the number of new business applications.
  
  

  • Florida is #1 for new business applications, but #3 for population.

  • Georgia is #5 for new business applications but #12 for population.

  • Wyoming is #51 population but #23 for new business applications.

  • The District of Columbia (DC) is #49 for population but #22 for new business applications.

• Overall, total new business applications fell 4.7% year-over-year in the US in 2024.

  • Only six states experienced positive year-over-year growth.

    • Washington: +16.1%

    • Montana: +13.2%

    • Oregon: +8.0%

    • DC: +3.9%

    • Alaska: +2.4%

    • South Dakota: +0.4%

  • Four states experienced declines of 10% in year-over-year growth in 2024.

    • Louisiana: -15.1%

    • Georgia: -12.3%

    • Mississippi: -11.3%

    • Alabama: -10.2%

Since size is such a key factor when examining new business applications by state, it is hard to derive any real insights by comparing growth rates. Trying to compare by number of applications presents the same problem. In an effort to give a better way to compare, I analyzed total new business applications as a percentage of total jobs by state. This eliminates the size factor and helps us identify trends that are comparable by state.

My reasoning for examining this ratio is that if the business application converts to a new business, then new jobs are created. This ratio gives us perspective on whether new business applications are converting to actual new businesses and jobs. A rising ratio implies that a higher percentage of new business applications are not converting to new jobs while a lower ratio implies more applications are converting to new jobs.

• All states showed an increase in new business applications as a percentage of total jobs.

• Wyoming is the clear outlier.

  • Wyoming saw a surge in new business applications after the pandemic crisis and that pace has continued to far outpace jobs growth since then.

  • Since the surge occurred in 2024, it is too early to tell if the surge will result in a surge of new jobs being created.

The above graph illustrated that all states saw in increase in the total new business applications as a percentage of total jobs compared to five years ago. The question is how much of a change occurred. The following graph illustrates the percentage point change that occurred.

• Sixteen states had a positive percentage point change of at least one percent from five years ago.

  • The US experienced a one percentage point change.

• Three states had a percentage point change of 0.3% or less from five years ago.

  • Alaska, Delaware, and North Dakota

• As discussed last week, new business applications are the first step toward starting a new business, generating new jobs and income.

• Over the past year, the US experienced a decrease in the number of new business applications.

  • The results were bifurcated when examined at the state level.

    • Six states experienced year-over-year growth while 45 states (including DC) experienced declines.

  • Whether the declines were due to people waiting for the election results, a rising level of uncertainty or other reasons are unknown but will need to be monitored going forward to see if a downward trend is being established.

• Overall, the US has seen a 48.5% increase in new business applications since 2019.

  • 63% of the states experienced growth below 48.5% and 37% were above.

  • Wyoming experienced the strongest five-year growth at 212.9% while Alaska experienced the lowest at 12.1%.

• One of the trends over the past five years that needs to be monitored is the rise in business applications as a percentage of total jobs.

  • All states experienced an increase in this percentage.

  • Wyoming was the clear outlier with a surge in new business applications that started after the pandemic crisis and has continued.

    • On the surface that may seem good, but beneath the surface it is not good because new business applications as a percentage of total jobs also surged.

• A rise in the ratio of new business applications to total jobs indicates that a smaller percentage of the new business applications are converting to new businesses and jobs. There are a variety of reasons this may be occurring. 

  • One of the reasons may be that, after experiencing the work-from-home environment, people decided that they wanted to control their work-life balance by running their own business. As a result, they started the new business formation process by completing a new business application. Then, reality may have set in as they discovered that the potential financing cost of starting a business and the myriad other costs and time demands (i.e., tax filing, regulatory reporting, bookkeeping, etc.) of running their own business did not justify forming the business. Thus, applications rise but new businesses are not created and the percentage of applications to total jobs rises.

• Next week's Perspectives section will examine the types of business applications that historically have resulted in new businesses forming at the state level.