Business Formation in States

For both business applications and business formations, Kansas does better than some states, but lags many states and the nation.

Business Formation Statistics provide timely and high-frequency information on new business activity in the United States and individual states. It is an experimental data product from the United States Census Bureau. The Bureau collects and produces several series from this data. Data is available from July 2004 through February 2024.

A business application is recorded when someone requests an Employee Identification Number (EIN), with some exceptions. An application does not mean a business will form. Therefore, the Bureau creates a series called high-propensity applications, which, based on experience, are those applications likely to result in a business with a payroll. Spliced business formations within four quarters reports actual business formations plus a forecast for the next four quarters.

I believe the most interesting series are business applications, high-propensity business applications, and spliced business formations within four quarters. My article Visualization: Business Formation Statistics by State explains this data and holds the link to my interactive visualization, where you can explore this data.

Nearby charts taken from the interactive visualization show Kansas and nearby states. (Click charts for larger versions.) In the interactive visualization, you may choose any states, series, and time, and there are several charts and tables.

In both charts, business formation data is shown as a rate, in this case, formations per thousand residents. Notably, the rates for Colorado are much higher than for Kansas.

When considering this data, there are some caveats. One is that business applications and business formations are simply counted, with no consideration of the size of the business that may form, how long the business firm may survive, or whether the business pays low or high wages. Still, the high-propensity application series has been a useful indicator of future business activity. ⁽¹⁾“The analysis indicates that applications for likely employers (HBA) are particularly useful as early indicators of aggregate economic activity. The HBA series leads most PFEIs and appears to be an especially strong early indicator of total nonfarm employment and has a high leading positive correlation with it in terms of year-over-year monthly growth rates.” See Asturias, Dinlersoz, Haltiwanger, and Hutchinson, Business Applications as Economic Indicators, working paper CES-21-09, U.S. Census Bureau. Available here.