During the pandemic, many new businesses were created, see the first chart below. But the new businesses created were different. They were created by individuals rather than corporations, and they were smaller and less likely to hire a lot of people, see the second and third chart.
The bottom line is that business dynamics changed during Covid, with more one-person businesses opening since 2020. This is likely why the BLS overestimated employment in the birth/death model, which looks back five years and adjusts the total employment numbers for how many new businesses have opened and how many people work at these new businesses.
In other words, new businesses created are smaller and have fewer workers. The sector distribution seems to be fairly even and a lot of these businesses happen to be in Florida, see the fourth and fifth chart.
The implication for markets is that employment growth going forward will be lower because of an increase in the share of new businesses with fewer workers.
For more, see our chart book available here on these changing business dynamics.
Source: Census Bureau, Haver Analytics, Apollo Chief EconomistSource: Census Bureau, Haver Analytics, Apollo Chief EconomistNote: High-propensity businesses are those that have a higher likelihood of becoming businesses with employees and payroll capabilities, and include those that: Define themselves as a corporate entity, indicate a plan to hire employees, have a date for providing first wages and planned wages, have been given a NAICS industry code that aligns with accommodation and food services, construction, manufacturing, retail, professional, scientific or technical services, educational services and healthcare. Source: Census Bureau, Haver Analytics, Apollo Chief EconomistSource: Census Bureau, Haver Analytics, Apollo Chief EconomistSource: Census Bureau, Apollo Chief Economist. Note: Data for 2022.
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