The South Experiences an Early Rise in EIN Requests. What Does it Indicate?

Bloomberg Businessweek June 29, 2020 pp32-33 “A New Crop Of Startups Stokes Optimism” “Data show a bounceback in new businesses, though it’s geographically uneven”

With all the sudden unemployment brought on by COVID-19 shutdowns, “New business formation has rebounded quickly in parts of the country, raising hopes for a stronger-than-expected recovery”. IRS data shows than new Employer Identification Number (EIN) applications cratered in mid-March “they’re growing again across much of the country, led by Southern states that have been less severely affected by the coronavirus outbreak”.

Other data are appearing that support an uptick in employment; May unemployment was 13.3% down from 14.7% in April, retail sales “jumped 17.7%” in the same period and “there were record-breaking increases in manufacturing activity in the New York and Philadelphia regions. Having said that African Americans’ “jobless rate continued to climb slight, to 16.8%.

EIN starts can be very small sole proprietor shops to “high propensity businesses”. The latter are “considered a bellwether of labor market trends and overall health of the economy”. These rates are higher in Southern states but not in the Northern and Western states more impacted by government-mandated business interruption.

At least one small business owner, Jim Moore in North Carolina, believes that increasing vacancies and lower lease costs will create opportunities for expanding upon his portfolio of “fast-casual seafood restaurants”.

Many are trying to explain the optimistic data on timing etc. but Neil Dutta, Renaissance Macro Research in New York, “is taking a bullish view…He published a short note to client on the upturn in business formations recently, noting that many people commented on the sharp downturn in EIN applications in March, but few noted the more recent rebound”.

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