Thursday, October 22, 2020

This post was originally published on CNN - Business News

Home Business Americans are racing to create new businesses during the pandemic

Americans are racing to create new businesses during the pandemic

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This post was originally published on CNN - Business News

A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.
What’s happening: Applications to start businesses in the United States are at their highest level in more than a decade, according to data from the US Census Bureau. For the week ending October 3, the most recent data available, requests jumped nearly 40% from the same week one year ago.
This trend is very encouraging, according to Joseph Brusuelas, chief economist as RSM US. After a deep recession, you want a chunk of displaced workers to feel confident they can take advantage of pro-business conditions like low interest rates and strike out on their own, he said.
“This has been one of the primary catalysts of resilience of the US economy throughout its history,” Brusuelas told me.
New business applications did not noticeably increase after the recession that followed the 2008 financial crisis. Brusuelas said that was one signal that the recovery wasn’t going as planned, and that damage from people losing homes, cars and equity ran deep.
This time around, the crisis is hitting renters more than homeowners, he pointed out. That’s still troubling, but means that many Americans have held on to a key source of wealth, and may be more willing to take financial risks.
“One of the mistakes we made in the last crisis is we didn’t create the conditions for people to move toward the formation of businesses,” Brusuelas said.
Also helping: The work-from-home era is opening up new business opportunities and providing flexibility for would-be business owners. The ability to borrow cheaply is a boon, too.
In a recent research note, Goldman Sachs observed that some of the surge may be attributable to a backlog in applications from the lockdown period. Even so, “the data suggest a much more positive outlook for new business formation than after the last recession,” the investment bank said.
The big question is whether the rise in new businesses can help create jobs as the labor market recovery stalls. The country is still down 10.7 million jobs since February.
Goldman Sachs said that based on its analysis, applications indicating plans to employ workers “have increased more modestly.” But the rise in new firms is one reason it’s staying optimistic that jobs will return faster than in past slowdowns.

China is winning the global economic recovery

While much of the world scrambles to prevent new coronavirus cases from stalling the fragile recovery from recession, China’s economy is hitting its stride again and will end the year more influential than ever, my CNN Business colleague Laura He reports.
China is winning the global economic recovery

The world’s second largest economy was the only major world power to avoid a recession this year as Covid-19 forced lockdowns and crippled businesses. China’s GDP is expected to grow 1.6% this year, while the global economy as a whole will contract 5.2%, according to summer projections from the World Bank.
How it happened: A stringent lockdown and population tracking policies aimed at containing the virus helped propel a quick recovery. The government also set aside hundreds of billions of dollars for major infrastructure projects, and offered cash incentives to stimulate spending.
Getting results: The payoff was evident as tourism and spending rebounded during last week’s busy Golden Week holiday period.
By the end of the year, China’s slice of global GDP is likely to grow by about 1.1 percentage points, according to a CNN Business calculation using World Bank data. That’s more than triple the share it gained in 2019. By contrast, the United States and Europe will see their shares dip slightly.
All told, China’s economy is expected to be worth about $14.6 trillion by the end of 2020, roughly equivalent to 17.5% of global GDP.
Even without the disruption caused by the virus, China’s share would have ticked up this year, according to Larry Hu, chief China economist for Macquarie Group. But China’s ability to avoid a prolonged downturn means its importance to the world economy is growing at faster clip.

And the Nobel Prize for economics goes to…

This just in: American economists Paul Milgrom and Robert Wilson have been awarded the 2020 Nobel Prize in economics for their insight on auctions, the Royal Swedish Academy of Sciences said on Monday.
“This year’s Economic Science Laureates, Paul Milgrom and Robert Wilson, have not just clarified how auctions work and why bidders behave in a certain way, but used their theoretical discoveries to invent entirely new auction formats for the sale of goods and services,” the official Twitter account for the Nobel Prize tweeted.
In today’s society, auctions go beyond just selling art and artifacts to the highest bidder, the Royal Swedish Academy of Sciences, which distributes the award, noted in a press release.
“It could just as well be about selling something on the internet or buying property via an estate agent,” the group said.
Milgrom and Wilson, they said, figured out how to auction off related objects simultaneously, “for broad societal benefit rather than maximal revenue.”
A notable example: Determining how US authorities should auction off radio frequencies to telecom operators.
Earnings season kicks off Tuesday with some of the biggest US banks, while Apple (AAPL) is expected to unveil its latest iPhone at a highly anticipated event.

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