US workers continue to start their own businesses

By Theresa Sheehan, Econoday Economist
May 11, 2022

The data on business formation for April suggest that while the pace for applications for new employer identification numbers (EINs) is slowing down, the level is still quite elevated in the nearly two years since the March-April 2020 recession ended. The number of applications for EINs rose 1.6 percent in April to 423,153 from an upwardly revised 416,551 in March. The level is down 13.2 percent when compared to the unadjusted 442,559 in April a year ago.

While employers are begging for workers, many people are determined to strike out on their own both out of entrepreneurial spirit and to have more control over their work environment and earnings. These people may be part of the reason for the slow recovery in labor force participation as the US economy settles into a sustained expansion.

Many new businesses will be financed using equity from an existing home. Although mortgage interest rates are up, home valuations are up substantially as well. Some homeowners may be willing to accept a more costly refinance or open a home equity line of credit (HELOC) to start a business. The Fed’s senior loan officer survey showed that applications for HELOCs were up in the first quarter, perhaps to lock in a lower rate for future use.