Where Do New Businesses Emerge?

Policymakers constantly struggle deciding how to best promote new businesses and what can attract new startups to a region and make them thrive.

Entrepreneurs seek out current information on the economic conditions as part of their business initiation plans because economic uncertainty can affect these plans.

And researchers can use data on business formation activity to enrich their understanding of business cycles and economic conditions. They can also assess the role of national and local policies in generating new businesses and entrepreneurship.

Information on new business formations is valuable to a variety of data users, but data on business formations captured in surveys and administrative records has only been available with a considerable time lag.

Now, a new U.S. Census Bureau economic data product offers a timely and high-frequency picture of early-stage business formation activity.

Today, the Census Bureau introduced the Business Formation Statistics (BFS). The BFS looks at trends in business applications and formations at the state, regional and national level.

BFS relies on administrative records from the Internal Revenue Service, rather than a survey.

It began as a research project in the Census Bureau’s Center for Economic Studies in 2012, and was first released in beta form in February 2018. BFS is the result of a collaboration between the Census Bureau and the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of Atlanta, the University of Maryland and the University of Notre Dame.

The first formal release of BFS was on July 17, 2019. It covered the second quarter of 2019.

Data users can rely on BFS to enrich their understanding of the current health of national and local economies.  BFS provides a measure of business formation activity, and it comes at a high-frequency.  All the data will be available quarterly at the state, regional, and national levels within three weeks of a quarter’s end. Timely and comprehensive information on recent business startups in BFS can enhance the ability of researchers, policymakers, and the business community to assess recent national and local trends in business formation, to anticipate shifts in economic conditions, and develop responses to them.

As an example of how BFS can help, consider the case of a policymaker or an entrepreneur seeking to learn more about recent business formation activity in Maryland.

BFS data for Maryland reveals that there were 20,013 new business applications in the second quarter of 2019.

Ultimately, about 1,235 of the applications (about 6.2%) are projected to become new businesses with employees within four quarters from the time of application.

The BFS family of statistics includes four “business application” series and eight “business formation” series.

The business application series is based on applications to the IRS (via Form SS-4) for an employer identification number (EIN). BFS identifies new business applications but excludes some types of applications, including those by trusts, estates, tax liens and public entities because they are not primarily intended for any business activity.  

The broader business application series includes a subset called High-propensity Business Applications (HBA). This subset contains applications with an intent to hire employees. It also includes applications in certain industries where applications typically have a higher likelihood of turning into employers.

BFS also releases two other series that are subsets of HBA: Business Applications with Planned Wages (WBA) and Business Applications from Corporations (CBA).   

The eight business formation series use the Census Bureau’s Business Register (BR) and Longitudinal Business Database (LBD) to identify new employer firm “births” and the quarter of their first payroll.

BFS also includes projections for business formations in recent and future quarters, for which data on actual business formations is not yet available.

In the future, one goal of BFS is to provide even higher frequency (monthly and weekly) and geographically more granular data, such as county-level statistics. 

Jane Callen is a senior editor and writer in the Census Bureau’s Communications Directorate.