Many believe that this year’s midterm elections will hang on the economy, and most available evidence suggests that the economic picture is mixed. Positive signs, however, might change political calculations before the vote.
Present circumstances leave room for both hope and doubt. Job numbers keep expanding but at a less than compelling pace. Real incomes have grown over the last 12 months but not quickly enough to dispel anxieties. Inflation, though slowing, remains above the 2 percent annual target preferred by the Federal Reserve, and nothing suggests that living costs will moderate enough to relieve the burdens imposed by the 2022 inflation surge. The jury remains out on the ultimate economic effects of the Trump administration’s tariffs and deregulation.
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However, two encouraging, if less well-known, signals have emerged. New business formation has surged over the last 12 months, as have business investments in new technologies and equipment. Both point to future hiring and income growth. If this news doesn’t banish all ambiguity, it does indicate something substantively positive about the economic outlook and points to surprising confidence within the business community, despite otherwise disruptive policies coming out of Washington.
The Department of Commerce recently reported that about 535,000 new business applications were filed last November, the most recent period for which data are available. That number is up a striking 7.1 percent from October’s figure and over 30 percent ahead of the pace of business formation a year ago. What’s even more compelling is how suddenly the growth took off this year, after three years of near stagnation. New business formation had hit records in 2021 as the economy recovered from the Covid pandemic. Clearly, entrepreneurs saw opportunities in the bankruptcies imposed by the 2020 lockdowns and quarantines. But as 2021 wore on, the pace of new business formation slowed again and held to that reduced pace through 2024. This year’s surge has recovered the 2021 records.
Moreover, applications for new business formation have increased in every region of the country. Of the four major regional classifications offered by the Commerce Department—South, West, Midwest, and Northeast—the strongest growth developed in the Midwest, where applications in November saw an 8.7 percent expansion over October. But even the weakest performance rate—the Northeast’s 5.3 percent growth—was none too shabby, especially by the standards of recent years.
The Commerce Department also reports that new orders for non-defense capital goods have jumped. True, these orders showed some retrenchment in September and October, the two most recent months for which statistics are available, but these data tend to be volatile from one month to the next. What is more significant is that these orders have risen by some 18 percent during the 12 months through October, signaling that businesses are preparing for higher rates of demand, output, and presumably hiring.
Though a fair proportion of the new applications have what the Commerce Department describes as a “high propensity” to form payrolls, it will take time for all this business formation, as well as the orders for new equipment, to create new jobs. The filings the Commerce Department tracks mostly reflect requests with the Internal Revenue Service for new employer identification numbers. Such requests usually come months before would-be employers can arrange financing, establish a physical presence, and begin hiring. Still, it’s safe to say that, unless all these would-be employers are misreading things, the new business formation will lead to new jobs and higher incomes. Whether these arrive before the midterms is another matter.
Donald Trump will take credit for these positive indicators, especially if they lead to greater hiring before the 2026 midterms. This will have some justification in the administration’s deregulation agenda, push for pro-business tax legislation, and perhaps even trade deals—though the economy also has a cyclical rhythm of its own. Even before jobs growth confirms the positive picture, this news of business formation and investment spending undermines claims from some economists that the administration’s disruptive policy agenda is causing businesses to restrain expansion plans.
Photo: Will Waldron/Albany Times Union via Getty Images