August 7, 2020
The extent of new business creation in California can be an important gauge of the health of the state’s economy. Past research suggests that new businesses account for a sizeable portion of job creation and also are more sensitive to swings in economic conditions than older businesses. Our own analysis of business formation data in California suggests that it typically has been a leading indicator of changes in unemployment in the past.
The graph below shows weekly data on business creation in California from the U.S. Census. New business creation crashed in late March and remained depressed through June. Over the last month, however, business creation has picked up notably, growing much faster than the recent historical average. This trend is somewhat surprising, and perhaps heartening, given that public health restrictions related to COVID-19 generally were being tightened during this period.