News Column

Better Economy Leading to More Startups

July 14, 2014

By Paul Davidson, @PDavidsonusat, USA TODAY

The number of new business establishments is finally on the rise after bottoming out in 2010. (file photo)
The number of new business establishments is finally on the rise after bottoming out in 2010. (file photo)

American entrepreneurs are emerging from their Great Recession bunkers.

New business formation is picking up, early indicators show, as banks ease credit conditions and rising home and stock prices provide would-be entrepreneurs more investment assets.

"It seems like it has bottomed out and it's starting to increase," says E.J. Reedy, research and policy director for the Kauffman Foundation, which studies entrepreneurship.

Business start-ups are vital to employment growth because they tend to add jobs at a much faster rate than other companies. New firms typically account for about half of total job gains during recoveries, the Federal Reserve Bank of San Francisco says in a new research paper.

The number of new business establishments fell from 656,000 in 2007 to 507,000 in 2010, rising only gradually in 2011 and 2012, Labor Department figures show.

Data for the latter part of 2013 and 2014 are not available, but other reports are providing early signs of at least a modest comeback in entrepreneurship:

•The number of franchise locations launched by first-time franchisees is expected to rise to about 5,700 this year from 4,700 in 2013, according to FRANdata, a consulting and research firm for the franchising industry.

•Businesses with 19 or fewer employees accounted for 27% of job gains since January 2013, vs. 26% in 2012 and 24% in 2011, figures from Moody's Analytics and payroll processor ADP show.

One reason banks are more receptive to hopeful business owners is the rebound in housing prices. Many entrepreneurs tap home equity to start businesses.

Original headline: Better economy births start-ups


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