Rising Businesses in US Facing Economic Slowdown
Due to the COVID-19 pandemic, there has been a sharp rise in the number of applications to launch new enterprises. This trend is reversing a long-term fall in the creation of new businesses. The numerous people who lost their jobs as a result of the pandemic, the rise in personal savings due to factors like government stimulus payments and a robust stock market, and the accessibility of affordable and widely available funding due to low-interest rates are just a few of the causes of this boom.
The increased entrepreneurial activity seen during the pandemic era has been met with new challenges as the economy has shifted. High inflation, rising interest rates, and a decline in personal savings have made it difficult for these new businesses to maintain financial stability. Additionally, the possibility of a recession further exacerbates the fragility of these young businesses, as even under normal conditions, many new businesses fail within the first five years.
Economist John Haltiwanger from the University of Maryland, who studies entrepreneurship, states that “young businesses are inherently vulnerable” and “especially likely to fail in a recession”. Despite these challenges, Americans filed applications to start 5.4 million new businesses in 2021, on top of the 4.4 million applications filed in 2020, the highest recorded in over 15 years of government data.
It is not currently possible to measure the impact of the cooling economy on new ventures as data on actual business formation will not become available for several years. However, the success or failure of these new businesses could have significant implications for the overall economy. Some experts have warned that the Federal Reserve’s monetary policy, aimed at controlling inflation, maybe make it more difficult for entrepreneurs by decreasing demand and increasing the cost of borrowing money.
Entrepreneurs themselves have a range of attitudes towards the future, with some feeling confident that they have learned valuable lessons from the disruptions of the pandemic, while others are concerned about the availability of funding in the face of a potential recession.