Business Formation in Kansas

For both business applications and business formations, Kansas is growing slowly compared to other states.

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. I believe the series of most interest 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.

Business applications are when someone requests an Employee Identification Number, with some exceptions. An application does not mean a business will form. So 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.

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Considering Kansas: If we look at the growth in high-propensity applications from April 2020 to June 2021, Kansas ranks forty-seventh among the states, DC, and the nation. For the period July 2004 to June 2021, Kansas is number 48. For other series, the results are similar.

Two nearby charts show Kansas, Iowa (a state similar to Kansas), and the nation. One chart shows data from July 2004, which is when the Bureau started collecting this data. The other begins with April 2020 and provides a look at post-pandemic business. In the interactive visualization, you may choose any states, series, and time, and there are several views and tables.

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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. Further, this analysis considers the change in the number of applications and formations, not the level of activity.

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.

References

References
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.

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