Each week the GREATER MSP Intelligence Team will share our latest insights on the economic impact of COVID-19 on the Greater MSP region. We’re listening, monitoring, and tracking national and global analysis from leading experts and delivering insights about what it means to the Greater MSP regional economy.

This week we’re examining business application stats that are now being released weekly from the U.S. Census Bureau. Business application statistics provide timely and high frequency data on business applications and employer business formations and are being used as a proxy for entrepreneurial activity. The release of weekly statistics is a response to COVID-19, and we are happy to see innovative experimental datasets like this one being made available for analysis.

Business applications are tallied from initiations of applications for Employer Identification Numbers (EIN) to the IRS. EIN’s are identification numbers used by business entities for tax purposes, like a social security number. They’re required to open a business bank account or to begin paying employee wages. For this reason, EIN’s are a good measure of business starts, though exclude many sole proprietorships where it may not be considered a necessity to have an EIN.

For purposes of this analysis we are focusing on what are considered “high-propensity” business applications. These are the business applications that, based on a variety of factors, exhibit indication that the business is expecting to have payroll and create jobs.   

Another signal of resiliency?

Minnesota is showing yet another signal of resiliency with one of the smallest annual declines in new high-propensity business applications during the COVID-19 crisis. There are 240 fewer applications this year than last year for the same 6-week period, an 11.3% drop. This is one of the biggest year-over-year drops since the Great Recession in Minnesota, but not as high as most states. We’ll continue monitoring to see how numbers fare through April and May to see if entrepreneurs are putting off starts.

But some deeper cause for concern.  

We uncovered a troubling trend in entrepreneurial activity since the Great Recession in Minnesota. We are experiencing a slow, consistent decline in entrepreneurial activity after the Great Recession and haven’t been able to return to pre-recession levels. As national leading economists have stated, fewer business applications show negative sentiment about the present and future business environment. The long-term trend in declining applications may be exacerbated by the current economic crisis, further limiting the innovation and job growth capacity of our region. 

A deeper look at our analysis.

To understand the impact of COVID-19 on business application activity we isolated the latest 6-week period (ending April 11^th) and summed the total of weekly applications.  It was found that over the last 6 weeks there were 1,890 high-propensity applications in Minnesota, an average of 315 per week. Last year for the same 6-week period there were 2,130 high-propensity business applications, an average of 355 per week. The year-over-year change from 2019 to 2020 was -11.3% in Minnesota. This is a noticeable drop and cause for concern.

Next, the intel team compared the Minnesota year over year change to other states to get a picture of the relative drop we are experiencing. We first compared Minnesota to states of our peer regions and uncovered some uplifting news: Minnesota experienced the smallest decline in high-propensity business applications. Year-over-year percent decline ranged from a low of -11.3% in Minnesota to a high of -30.9% in Pennsylvania. Curious to see how we are faring against all states we went one step further to examine all 50 and the District of Columbia and found that Minnesota has the 4^th smallest drop in applications, after Wyoming, Nebraska and Maine.

Drop in high-propensity business applications part of a longer-term trend.

We looked at change from 2018 to 2019 for the same 6-week period and found that the year-over-year change was also negative, at -2.7%, though not as pronounced as the decline we just felt. This got us worried. How long had the number of new high-propensity business applications been declining? For the 6-week period that ended April 11^th (weeks 10 through 15 of the calendar year) the number of high-propensity business applications was highest in 2006 at 3,180. The number of new high-propensity applications in Minnesota have been unable to recover to this pre-recession level, now 41% lower than 2006.

The good news is that we’ve been tracking entrepreneurial activity closely over the years and this is one more data point to help us get smarter at tackling the problem. In addition to business vitality indicators tracked on the Regional Indicators Dashboard, the GREATER MSP intel team works closely with the Forge North initiative to track data and insights that support the region’s startup community. Forge North’s network of entrepreneurs, investors, corporate innovators, and entrepreneurial support organizations is engaged, providing critical convenings to discuss current challenges. Yet another superpower of the GREATER MSP Partnership navigating us through this unprecedented time.