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The number of new start-ups is a pretty good gauge of how the economy is doing, and those numbers are just about back to pre-recession levels. In 2015, there were an average of 550,000 new start-ups each month, which sounds incredible, but keep in mind that doesn’t address the size of those start-ups, their relation to one-another, or a lot of other factors. It’s likely that they don’t all succeed, and obviously not all of them turn into multi-million dollar firms.
But those numbers are up over 2013, which tells analysts that entrepreneurs are feeling more confident about starting new businesses. For one, the national unemployment levels have dropped (from 10% in 2009 to 4.9% now) which means that people who leave a job to start a new business have more confidence that they’ll be able to get a new job if their project fails. That confidence is a significant part of the uptick, because as the economy gets stronger in general, risky business ideas seem more possible. Of course, there are other reasons behind the uptick as well, like the Affordable Care Act making it possible for new entrepreneurs to have insurance, and subsequently the confidence to go out and try their hand at something new.
New businesses are especially helpful to the economy because, as those that expand do so, they create new positions to employ people. More directly though, since not every start-up ends up hiring additional employees, they also tend to spur innovation, which not only help them to succeed, but also tends to filter out into other similar businesses. Innovation often leads to improved job productivity.
All of this also means that banks are being more generous with credit. When banks are more generous with credit, it makes it easier to start a new business, and new businesses are the building blocks of a strong economy.
