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Useful Stats: Most sectors on a downward trend in high-growth firms

April 04, 2024
By: Conor Gowder

Shrinking shares of job-creating, high-growth firms across the country, the topic of SSTI’s Useful Stats column in last week’s Digest, is not being experienced within all sectors of the economy, according to analysis of the Business Dynamics Statistics of High Growth Firms (BDS-HG) experimental dataset from the Census Bureau. From 1978-2021, the number of high-growth firms, measured by change in employment, has increased in five sectors, stayed the same in one, and decreased in the remaining 13 classifications of U.S. business and industrial activity. Slower-growth firms expanded their dominance of the economy, as all sectors experienced a decrease in the number of high-growth firms as a percentage of their total respective firms.

The number of high-growth firms increased the most in the educational services sector, consistent with the growth of private charter schools, mentoring services, and edtech over the period. Alternately, high-growth firms in mining decreased the most relative to their 1978 values, which one might expect as the U.S. offshored resource-intensive industries and adopted mining approaches that required fewer workers.

In terms of sector proportions, finance and insurance had the smallest decrease in the percentage of firms that are high growth, dropping 1.19 percentage points from 2.86% in 1978 to 1.67% in 2021, while construction had the largest at 5.34 percentage points over the same period, from 8.39% to 3.05%.

The BDS-HG breaks down firm growth rates into nine growth rate bins, ranging from -2 to 2. To view the ranges of each bin, the formulas used, and other methodological items, refer to BDS-HG’s methodology page. Firms are considered “high-growth” by the authors of the data as long as they fall into the growth rate bin of 0.8-2. The -2 bin represents exits, which were not used in SSTI’s calculations of the percentage of firms that are high-growth, while the 2 bin represents entries.

Sector and industry-level data is available and uses North American Industry Classification System (NAICS) distinctions at the two, three, and four-digit levels. This article explores the data using two and four-digit NAICS codes. Two-digit NAICS codes represent sectors, while four-digit codes represent industry groups. Read more about NAICS codes on the Census website.


Changes in the number of high-growth firms by sector

The five sectors with increases in the number of high-growth firms since 1978 were: educational services (75% or 1,091 firms); professional, scientific, and technical services (43% or 4,376); arts, entertainment, and recreation (37% or 827); administrative and support and waste management and remediation services (32% or 2,432); and, health care and social assistance (17% or 2,049).

The number of firms in information stayed the same over the 44 years, while the remaining 13 sectors decreased.

As mentioned previously, high-growth firms in mining had the largest relative decrease, at 77%, or 855 firms, followed by: management of companies and enterprises at 73%, or 450 firms; agriculture, forestry, fishing and hunting, at 69%, or 1,008 firms; and, manufacturing at 65%, or 8,220 firms. See Figure 1 below for the remaining sectors’ trends.

Figure 1 shows up to five sector line charts of the number of high-growth firms from 1978 to 2021. To adjust the data displayed, click on the search bar titled “Enter series to show,” and either type or scroll and click on up to five sectors. The y-axis (number of firms) will automatically be scaled to account for the minimum and maximum values, allowing for more granular changes to be seen clearly. For example, mining has the largest relative decrease in high-growth firms but a comparatively smaller base of firms, so by isolating this sector on the chart, the trends can be more easily seen.

Figure 1: High-growth firms over time by sector.


An example of industry-level changes in high-growth firms: manufacturing

A shift from the high-level two-digit classification to the more specific four-digit level reveals nuances within sectors that can provide greater insight for shaping future TBED policy direction. In the discussion below, the manufacturing sector provides a useful illustration of the value of four-digit examination of trends.

The number of high-growth firms in the manufacturing sector has decreased by 65%, or 8,302 (note that the sum of four-digit NAICS may not equal their respective provided two-digit NAICS) from 1978 to 2021. Just five four-digit NAICS code industries accounted for 40% (3,333 firms) of this decrease, while those and an additional 16 accounted for nearly 80%. For reference, there are 86 four-digit NAICS code industries within the manufacturing sector.

High-growth firms in printing and related support activities decreased by 952 from 1978 to 2021, the largest of any within manufacturing, followed by machine shops; turned product; and screw, nut, and bolt manufacturing with a decrease of 856.

Only four four-digit NAICS within the manufacturing sector increased in the number of high-growth firms between 1978 and 2021: beverage manufacturing (341), other food manufacturing (67), pharmaceutical and medicine manufacturing (53), and sugar and confectionery product manufacturing (6). Railroad rolling stock manufacturing stayed the same at four high-growth firms.

Figure 2 provides a breakdown of the number of high-growth firms for all two-digit NAICS code industries and, when one of these is clicked, reveals the high-growth firm count for the respective sector’s four-digit NAICS. This display provides a significantly more detailed look at industry-level data, revealing concentrations or significant changes within the industries that would otherwise have gone unnoticed.

Figure 2: Breakdown of the number of high-growth firms by 2 and 4-digit NAICS codes


High-growth firms as a percentage of total by sector

[Note: Because the following data is more granular and covers a smaller range, percentages will be detailed to the hundreds for this section.]

High-growth firms typically comprise a very small portion of the total firm count: prior SSTI analysis of BDS-HG data found only 2.32% of all firms nationally fell into the high-growth bin. But what about within each sector?

In 2021, administrative and support and waste management and remediation services was the sector with the largest proportion of high-growth firms to all firms at 3.30%, followed by construction at 3.05%, educational services at 2.94%, and arts, entertainment, and recreation at 2.89%.

On the other end of the spectrum, management of companies and enterprises had the smallest proportion at just 0.68% of its firms falling into the high-growth bin. Real estate rental and leasing at 1.63%, finance and insurance at 1.67%, and wholesale trade at 1.68% followed.

When comparing the newest (2021) and oldest (1978) data available, it is revealed that the proportion of high-growth firms to total firms has decreased across all industries, ranging from finance and insurance’s decrease of 1.19 percentage points (from 2.86% in 1978 to 1.67% in 2021) to construction’s 5.34 percentage point decrease (from 8.39% in 1978 to 3.05% in 2021).

Figure 3 below shows grouped bar charts for the all-sector total and 19 sector’s percentage of total firms that are high-growth for 44 (the life of BDS-HG data), 20, 10, and five years ago, and the most current year. With the exception of “All Industries” being placed first and “Other Services (except Public Administration)” being placed last, the industries are sorted by their 44-year percentage point change.

Figure 3: Percentage of firms that are high-growth, by sector and selected year


All data in this article is available for download on the BDS-HG data page.

This article was prepared by SSTI using Federal funds under award ED22HDQ3070129 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.

useful stats, census, entrepreneurship