What is a 'Business Starts Index'

A Business Starts Index is an economic indicator based on the number of businesses that start over a given period. The primary use of the Business Starts Index is to forecast whether the economy is a period of growth or decline. Economists, investors and lawmakers use the index to evaluate current financial trends and to forecast future economic conditions. Business starts include both incorporated and unincorporated companies based on public filings. 

Breaking Down 'Business Starts Index'

In addition to nationwide statistics, individual states report their monthly business starts (and stops), which means that the index can be used for comparative purposes for particular time periods and regions. Such statistics can be used alongside various other economic indicators, such as housing starts, industrial production, jobless claims, the productivity report, the Purchasing Managers Index (PMI), mutual fund flows, among others, to determine how an economy is performing and where it is likely heading.

In early 2018, the U.S. Census Bureau launched a beta version of its Business Formation Statistics (BFS) tool, a new public-use data product, which aims to address a shortcoming in timely and accurate data on business startups. The new tool tracks Employer Identification Number (EIN) applications, which are a precursor to a business start.

Business Starts Index and Economic Forecasting

Since entrepreneurship is such vital facet of the U.S. economy, there are various statistical indicators employed to gauge the health of the economy. The government, which plays a key role in disseminating economic information it collects as a key regulator, collects information on new businesses and job creation based on filings via the Bureau of Labor and Statistics (BLS). Business starts can foretell labor market strength or weakness as seen in the BLS Business Employment Dynamics (BED) program, which tracks business starts (also known as establishments), number of jobs created, firm size and establishment survival.

Business Starts Index at the State Level

Since individual states track business starts as part of their licensing and Employer Identification Number requirements, they are often at the front lines when it comes to reporting business starts (and failures). Most (if not all) states compile this information as a function of their individual departments of state. For example, Connecticut's Department of State produces regular reports on business starts and stops. They track number of starts by month and year, month to month and year to year changes (as a percentage), a year-to-date tally or starts and stops, and a percentage change year-to-date.

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