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Americans rush to create new businesses in pandemic

2020-10-13T03:51:46.528Z


In times of intense uncertainty, Americans are rushing to create new businesses, a positive sign of economic recovery.


Increase in business creation in the US 1:01

(CNN Business) -

At a time of intense uncertainty, Americans are rushing to create new businesses, a positive sign of economic recovery.

What's happening: Applications to start businesses in the United States are at their highest level in more than a decade, according to Census Bureau data.

In the week ending October 3, the most recent data available, applications increased nearly 40% over the same week last year.

This trend is very encouraging, according to Joseph Brusuelas, chief economist at RSM US.

After a deep recession, you want a portion of displaced workers to feel confident that they can take advantage of business-friendly conditions, like low interest rates, and act on their own, he said.

"This has been one of the main catalysts for the resilience of the US economy throughout its history," Brusuelas explained to me.

Growth of new applications to open businesses in the US in the last decade.

Source: Census Bureau.

Graphic: Tal Yellin.

Comparison with other crises

New applications to start businesses did not increase significantly after the recession that followed the 2008 financial crisis. Brusuelas said that was a sign that the recovery was not going as planned, and that the damage to the people who lost their homes, cars, and heritage ran deep.

This time, the crisis affects tenants more than landlords, he noted.

That is still concerning, but it means that many Americans have held onto a key source of wealth.

And that they may be more willing to take financial risks.

  • MIRA: What lessons can you learn from economic crises?

"One of the mistakes we made in the last crisis is that we did not create the conditions for people to move towards company formation," Brusuelas said.

Something that helps too: The work-from-home era opens up new business opportunities and provides flexibility for prospective business owners.

The ability to borrow cheaply is a bonus too.

In a recent research note, Goldman Sachs noted that part of the increase can be attributed to a backlog of applications since the closing period.

Still, "the data suggests a much more positive outlook for new business formation than after the last recession," the investment bank said.

Link between new businesses and more jobs

The big question is whether the surge in new businesses can help create jobs as the job market recovery stalls.

The country has lost 10.7 million jobs since February.

  • LEE: Almost 4 million US jobs have disappeared forever

Goldman Sachs said that according to its analysis, applications indicating plans to employ workers "have increased more modestly."

But the surge in startups is one reason he remains optimistic that jobs will return faster than in past recessions.

China is winning the global economic recovery

While much of the world struggles to prevent new coronavirus cases from delaying the fragile recovery from the recession, China's economy is accelerating again.

And it will end the year with more influence than ever, as reported by my CNN Business colleague Laura He.

The world's second-largest economy was the only major global power that avoided a recession this year when Covid-19 forced shutdowns and brought businesses to a standstill.

China's GDP is expected to grow 1.6% this year.

This while the world economy as a whole will contract by 5.2%, according to the World Bank's summer projections.

How it happened: A strict lockdown and population monitoring policies aimed at containing the virus helped drive a speedy recovery.

The government also set aside hundreds of billions of dollars for major infrastructure projects.

And it also offered cash incentives to stimulate spending.

  • LEE: Which pandemic?

    Crowds crowd the Great Wall of China

The results: The payoff was evident when tourism and spending rebounded during the busy Golden Week holiday period that took place last week.

Forecasts for the end of 2020

By the end of the year, China's share of world GDP is likely to grow about 1.1 percentage points, according to a CNN Business calculation with World Bank data.

That's more than triple the share it gained in 2019. By contrast, the US and European fractions will drop slightly.

In total, China's economy is expected to be worth around US $ 14.6 trillion by the end of 2020. This equates to roughly 17.5% of world GDP.

Even without the disruption caused by the virus, China's share would have risen this year, according to Larry Hu, chief China economist at Macquarie Group.

But China's ability to avoid a prolonged recession means that its importance to the world economy is growing at a faster rate.

And the Nobel Prize in Economics goes to ...

This is how Paul Milgrom found out that he won the Nobel 1:25

American economists Paul Milgrom and Robert Wilson were awarded the 2020 Nobel Prize in Economics for their input on auctions, the Royal Swedish Academy of Sciences said on Monday.

'This year's economics laureates Paul Milgrom and Robert Wilson not only clarified how auctions work and why bidders behave in a certain way, but used their theoretical insights to invent entirely new auction formats for the sale of goods and services, "tweeted the Nobel laureate's official Twitter account.

In today's society, auctions go beyond the sale of art and artifacts to the highest bidder, the Royal Swedish Academy of Sciences, which distributes the award, said in a press release.

"It could also be about selling something on the internet or buying a property through a real estate agent," the group said.

Milgrom and Wilson, they noted, discovered how to auction related items simultaneously "for broad social benefit rather than maximum revenue."

A notable example: determining how the US authorities should auction radio frequencies to telecommunications operators.

coronaviruscovid-19

Source: cnnespanol

All news articles on 2020-10-13

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