Entrepreneurship in Manufacturing

Sameeksha Desai, Chris Holcomb, and Suri Xia

The COVID-19 pandemic caused major fluctuations for businesses and industries across the United States. This brief examines trends in new business registrations in manufacturing in 2020 and through August 2021. Key trends include:

• Entrepreneurship in manufacturing during the first two quarters of 2021 was higher than for the same period during the pandemic year of 2020 and the same period in the years from 2004 to 2019.
• Entrepreneurship in manufacturing from January through August of 2021 declined more than entrepreneurship in most other industries nationally.
• In 2020, the manufacturing sector recorded its lowest March for entrepreneurship on record. However, in July, August, and September 2020, the industry saw the highest monthly numbers of new business applications since 2004. Higher than average new business applications in manufacturing continued through August of 2021.

The trend in new business applications over time is often marked by higher applications in January through March, followed by declining monthly applications over the course of the year. In 2020 and 2021, new business applications had a different pattern: they were slightly above average from January through May and surged from June of 2020 through August of 2021. In each of these months, the number of business applications exceeded the monthly records for the years 2004 to 2019.

In the manufacturing industry, fluctuations in new business applications over 2020 were even more dramatic. There were fewer applications in March of 2020 than in the same month in each year since 2004. However, a record number of new manufacturing business applications was recorded just four months later, in July 2020. During 2020, the largest month-to-month increase during 2020 occurred from June to July (58.2%), followed by the largest month-to-month decrease from July to August (23.6%).

Overall, the total number of manufacturing business applications in 2020 was 9.6% higher than the 2004-2019 average, and 2.8% higher than the previous annual record.

Early trends in 2021: Entrepreneurship in manufacturing

These trends largely continued into 2021. For each of the first six months of 2021, new business applications in manufacturing exceeded all previous monthly records from 2004-2020. Manufacturing business applications peaked in March of 2021, with 8,964 total applications. However, application numbers in manufacturing fell 28% from June to July 2021. Both July and August of 2021 were still above average in new business starts, but fell below the record highs witnessed in 2020.

Entrepreneurship in all industries has declined from January to August of 2021. Across all industries, there has been a 23.5% decline in new business applications from January 2021 to August. However, the decline within manufacturing was larger, at 30.7%. Only two other industries experienced declines in applications of 30% or more: retail trade (33%) and Agriculture (45%).

The decline in new manufacturing business registrations over 2020 (-20.4%) outpaced total new business registrations (-14.5%). There was substantial variation in the pattern of change across industries in 2020. The agriculture and mining sectors saw the largest declines in entrepreneurship from January to December (with -39.6% and -39.9%, respectively), while the utilities and retail trade sectors experienced the largest growth in business registrations over 2020 (13.1% and 11.1%, respectively).

Data:
Data used in this brief come from the Business Formation Statistics (BFS), a publicly available administrative dataset of the U.S. Census Bureau. New business registrations reflect new applications for an employer identification number, taken from IRS Form SS-4 filings, and are available by geography, industry, and monthly / annually. Unadjusted monthly data is used in this analysis (yearly totals are calculated using monthly estimates) and manufacturing is reported based on 2 digit NAICS code for the industry. Subsector disaggregation is not provided. For more on the BFS data, including technical documentation, see https://www.census.gov/econ/bfs/index.html and Bayard et al (2018).

References:
Bayard, K., Dinlersoz, E., Dunne, T., Haltiwanger, J., Miranda, J. and Stevens, J. (2018) Early-stage business formations: an analysis of applications for employer identification numbers, NBER Working Paper 24364, March.