New Establishment Birth Rate

The Great Recession knocked the new establishment birth rate – the number of new establishments founded as a percentage of operating establishments – down from its historical average.

Source: Created from Data from the Bureau of Labor Statistics

Since 1993, when the Bureau of Labor Statistics first made the data available, the new establishment birth rate has averaged 3.2 percent of total establishments in operation, as the figure above shows.

Moreover, BLS data reveal that the rate of new establishment formation remained in a fairly tight range of between 3 and 3.5 percent of active establishments from 1993 through 2007. However, in 2008, that pattern abruptly changed. The new establishment birth rate fell below 3 percent, a decline from which it has not yet recovered.

The drop in establishment births results from a decline in the number of establishments being founded, not a change in the number of active establishments. Between 1993 and 2010, the number of quarterly establishment starts averaged 201,000.

In 2008, however, this figure dropped below 200,000 for the first time since 2003, falling to a low of 169,000 in the third quarter of 2009.

The twitter length message here is that the Great Recession led American entrepreneurs to cut new establishment openings from historically stable levels.

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Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

One Reaction
  1. Scott–

    It would be really interesting to see the net growth number – not just births, but deaths. I’m sure the SBA wants to gloss over that number.

    To me, a downward turn in the market is a fine time to start (then again, I’m a small business optimist, so, short of being parachuted into a Communist economy, there’s no bad time to start) a business if you have value to offer. Many companies become defensive and risk-averse, so innovation and expansion can take a larger portion of market share while your competitors are retrenching.

    It does, though, take a greater risk-seeking mindset to make the leap when times are perceived to be bad.