Business Application Shows Growth in Q2 2020


Housing creates jobs, and housing in turn follows job growth from business activity. Thus, tracking the growth of enterprise provides a guide to future home building.

The Census Bureau recently released its Second Quarter 2020 Business Formation Statistics Report (BFS). The report provides timely and high-frequency data on business applications and employer business formations measured by applications for an Employer Identification Number (EIN) on the IRS Form SS-4. The BFS is the culmination of research efforts by the Census Bureau, Board of Governors of the Federal Reserve System, Federal Reserve Bank of Atlanta, the University of Maryland, and the University of Notre Dame.

The Business Formation Statistics includes four business application series: Business Application (BA), High-Propensity Business Application (HBA), Business Application with Planned Wages (WBA) and Business Applications from Corporations (CBA). HBA and WBA are strong predictors of business startups that create jobs.

In addition to business formation, BFS also provides forward-looking information on local economic activity. For instance, a working paper from Federal Reserve Bank of Minneapolis found that business applications activity is positively correlated with house prices and negatively correlated with unemployment rates, as application responses may include information such as future job creations and wage pays.

During the first quarter of 2020, business applications decreased from the previous quarter in all 50 states and the District of Columbia due to the unprecedented shutdown of economic activity. However, compared to the hard-hit Northeast, declines in populous states such as California, Texas and Florida were less severe in the first quarter, and applications were higher (or virtually unchanged) than a year ago.

In the second quarter of 2020, as some states started to reopen their economies, the number of business applications increased 4.8% to a seasonally adjusted annual rate (SAAR) of 883,174. On a year-over-year basis, applications were 2.0% higher than a year ago. However, for the subsets of business applications, HBA, WBA, and CBA fell 2.7%, 3.5%, and 13.3% respectively in the second quarter of 2020, and were 8%, 14%, and 20% lower than a year ago.

Regionally, the decrease in business application was largely concentrated in the Northeast and the West, where all four different business application series saw a decline in the second quarter. Despite a reduction in business applications, the drop in rates in the Northeast were more than twice the rate in the West. On the other hand, applications were mixed in the Midwest and the South. Total business applications and high-propensity business applications grew in the Midwest and the South, while applications from corporations fell in these two regions.

Looking deeper, most states in the South region experienced a double-digit gain in the second quarter, while populous states such as Texas and Florida only experienced roughly 2% growth in business applications. Meanwhile, states in Northeast region continue to see a decline in business applications in the second quarter.

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