Useful Stats: Sectoral breakdown of total and high-propensity business applications, 2005-2023

Led by increases in retail trade and professional, scientific, and technical services, the number of annual business applications nationwide has increased 119%, or nearly three million, from 2005 to 2023. However, the share of applications classified as high-propensity, or those more likely to result in businesses with a payroll, has decreased in all but the health care and social assistance sector, leading to a 26-percent point drop (58% to 32%) over the same period.

This article builds upon a prior SSTI article covering the same data, but examines which two-digit North American Industry Classification System (NAICS) industry sectors are generating more new business applications and which are declining. For a list of all NAICS sectors and their codes, refer to the NAICS Association website.

Monthly data on seasonally adjusted business applications have been downloaded from Business Formation Statistics (BFS) and annualized by taking the sum of each month in a given year.

Data for both total business applications and the subset of those defined as high-propensity are used in this article. When characterizing high-propensity businesses, the Census Bureau uses information from IRS Form SS-4, an IRS form used for filing EIN applications. Refer to the Census Bureau’s “Business Formation Statistics—Definitions” page for the specific characteristics used.

Business applications by sector

While prior SSTI analysis of annualized BFS data from 2005 through 2023 revealed a positive trend in the overall quantity of business applications, led by a 24% and 23% jump from 2019 to 2020 and 2020 to 2021, respectively, a sectoral breakdown of the data shows that much of this growth occurred in only a subset of sectors. Retail trade, professional, scientific, and technical services, and administrative and support and waste management and remediation services represent the lion’s share of new business applications with about 43% (851,000 of 1,973,000) of the increase in business applications over the 5-years from 2019-2023. To break this down further, since 2005, business applications in retail trade have increased the most (674,000), followed by professional, scientific, and technical services (377,000), while those in utilities (5,400) and manufacturing (32,000) grew the least. Mining (-1,400) was the only sector with fewer business applications in 2023 than 2005.

However, the largest relative increases within a single industry since 2005 were in utilities (321%), followed by business applications with no assigned NAICS (242%). Three additional sectors—retail trade, management of companies and enterprises, and transportation and warehousing—had business applications over 200% greater than their 2005 values. As previously mentioned, just one sector, mining, experienced a decrease in its quantity of business applications, with 17% fewer.

To see these trends over time, refer to Figure 1 below.

Figure 1: Business applications by sector and year.

Share of high-propensity business applications by sector

While an important metric, the number of business applications, covers a broad spectrum of prospective businesses, including those that may not hold much of an economic impact; BFS data, thus, breaks down these applications further into those deemed high-propensity—applications that are more likely to turn into businesses with payrolls.

Prior analyses by SSTI found that while the number of these high-propensity applications has increased over time, they have decreased as a share of all business applications every year since 2005, with the largest relative decreases following periods of recessions.

Since 2005, all business applications in the accommodation and food services sector have been classified as high-propensity entities. The sector with the largest non-100% rate is health care and social assistance, with 70% of those businesses classified as high-propensity entities in 2023. Construction and manufacturing follow with 53% and 40% of their respective business applications being high-propensity.

On the other end of the spectrum, the agriculture, forestry, fishing and hunting sector has the lowest percentage of its applications classified as high-propensity at just 12%, followed by both utilities and real estate rental and leasing with 14% each. However, this wasn’t always the case; looking back at 2005 values, each of these sectors’ share of high-propensity applications was above 36%.

Since 2005, as mentioned above, the share of high-propensity business applications increased in just one sector, health care and social assistance, by five percentage points (65% to 70%). Other than accommodation and food services, which stayed constant at 100%, all other sectors, including those with no assigned NAICS, decreased by at least 10 percentage points. The largest decreases were in retail trade (-35 percentage points; 59% to 23%) and professional, scientific, and technical services (-34 percentage points; 62% to 28%), and construction (-34 percentage points; 87% to 53%).

More trends can be found in Figure 2 below.

Figure 2: Sectoral breakdown of the percentage of high-propensity business applications by year.

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.