May, 2010Rather than making history for its deep recession and record unemployment, 2009 might instead be remembered as the year business startups reached their highest level in 14 years – even exceeding the number of startups during the peak 1999-2000 technology boom.
According to the Kauffman Index of Entrepreneurial Activity, a leading indicator of new-business creation in the United States, the number of new businesses created during the 2007–2009 recession years increased steadily year to year. In 2009, the 340 out of 100,000 adults who started businesses each month represent a 4 percent increase over 2008, or 27,000 more starts per month than in 2008 and 60,000 more starts per month than in 2007.
In 2009, 558,000 new businesses were created each month (0.34 in 2009). The index increased for the second straight year, from 0.30 percent in 2007 to 0.32 percent in 2008.
"Challenging economic times can serve as a motivational boost to individuals who have been laid-off to become their own employers and future job creators,"said Carl Schramm, president and CEO of the Kauffman Foundation. "Because entrepreneurs drive the economy, the growth in 2009 business startups is encouraging and hopefully points to a hopeful trend in terms of our economic recovery.”
Capturing new business owners in their first month of significant business activity, the Kauffman Index of Entrepreneurial Activity provides the earliest documentation of new-business development across the country. The percentage of the adult, non-business-owner population that starts a business each month is measured using data from the monthly Current Population Survey (CPS), conducted by the U.S. Bureau of the Census and the Bureau of Labor Statistics. In addition to this overall rate of entrepreneurial activity, the Kauffman Index presents separate estimates for specific demographic groups, states and select metropolitan statistical areas (MSAs). It provides the only national measure of business creation by specific demographic groups.
New 2009 data allow for an update to previous reports, revealing important shifts in the national level of entrepreneurial activity, and in the demographic and geographic composition of new entrepreneurs across the country between 1996 and 2009. Interactive data spanning all 14 years is available at www.kauffman.org/kiea.
Entrepreneurship rates by race show that African-Americans experienced the largest increase in entrepreneurial activity between 2008 and 2009. Rising from 0.22 percent in 2008 to 0.27 percent in 2009, the rate was the highest over the 14 years of reported data but remains below other racial groups. In contrast, both Latinos and Asians experienced declines in entrepreneurial activity rates.
Entrepreneurship growth was highest among 35- to 44-year-olds, rising from 0.35 in 2008 to 0.40 in 2009. The oldest age group in the study (55-64 years) also experienced a large increase in business-creation rates from 2008 to 2009, contributing to a two-year upward trend to 0.40.
Among states, Oklahoma and Montana had the highest entrepreneurial activity rates, with 470 per 100,000 adults creating businesses each month. The other states with the highest rates were Arizona (460 per 100,000 adults), and Texas and Idaho, both with 450 businesses started per 100,000 adults. The five states with the lowest rates of entrepreneurial activity were Mississippi (170 per 100,000 adults), Nebraska (200 per 100,000 adults), Pennsylvania (200 per 100,000 adults) Alabama (210 per 100,000 adults) and Minnesota (220 per 100,000 adults).
There was substantial variation in entrepreneurial activity rates across states in 2009. Mississippi exhibited the lowest entrepreneurial rate, and Oklahoma and Montana had the highest rates.
"Entrepreneurial activity rates follow strong geographical patterns,"said Robert W. Fairlie, the study's author and director of the master's program in applied economics and finance at the University of California, Santa Cruz. "Entrepreneurial activity generally is highest in western and southern states, and lowest in the Midwestern and northeastern states."
Other key findings for 2009 include: