Fact-check: Are there more small businesses now compared to before the pandemic?

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President Joe Biden: "The number of small businesses is up 30% compared to before the pandemic."

PolitiFact's ruling: False

Here's why: During remarks designed to report his administration’s progress on unclogging the nation’s supply chains, President Joe Biden touted another positive economic indicator on his watch: growth in small businesses.

"We’re the only leading economy in the world where household income and the economy as a whole are stronger than they were before the pandemic," Biden said on Dec. 1 from the White House complex. "You know, there are other signs of strength, too. The number of small businesses is up 30% compared to before the pandemic."

We were surprised to hear that statistic about small businesses, given that a pandemic-induced recession clobbered restaurants and other small companies.

So we dug into it, and found that Biden had misstated a real statistic.

The White House referred us to Census Bureau data that tracks how many Americans are applying for employer identification numbers, a step in the process of starting a new payroll. Economists often use this as a proxy for small business creation.

In the most recent month for which data is available, October 2021, the data shows that 52,277 applications were made. Two years earlier, in October 2019, there were 39,105 applications. That’s just over a one-third increase, which roughly tracks with the number Biden cited.

Small businesses creation is running higher now than before the pandemic

However, this data does not support his assertion that "the number of small businesses is up 30% compared to before the pandemic."

That’s because the data in question measures the number of new small businesses being created, not the increase in the total number of small businesses there are in the country. Notably, it doesn’t account for the number of businesses that have failed. (The latest available government data on the total number of businesses is a couple of years old.)

"The president should have said something like, ‘The number of new small businesses created in recent months is up 30% compared to the months immediately before the pandemic,’" said Gary Burtless, an economist at the Brookings Institution.

When we shared this feedback with the White House, they pointed to a speech the previous week where Biden said the talking point correctly.

Economists said that Biden’s poor phrasing in his Dec. 1 remarks effectively stepped on a positive message for the administration: Small business creation has indeed been strong recently.

"The recovery from the pandemic has been associated with a surge" in new small businesses, said John Haltiwanger, a University of Maryland economist. That includes entities that expect to hire staff, which is the statistic the White House was using, and those that expect to remain one-person operations.

Still, we don’t know how strong this small business growth is on net without knowing how many small businesses shuttered during the pandemic.

Our ruling

Biden said, "The number of small businesses is up 30% compared to before the pandemic."

Biden was citing a real statistic, but he described it incorrectly. In reality, there has been a 30% rise compared with late 2019 in a certain type of tax-related applications that are widely used as a proxy for small business formation. This statistic shows that the number of newly created small businesses is up 30%, not the total number of small businesses.

We rate the statement False.

Sources

  • White House, remarks by President Joe Biden on the nation’s supply chains, Dec. 1, 2021

  • White House, remarks by President Joe Biden announcing his nominees for chair and vice chair of the Board of Governors of the Federal Reserve System, Nov. 22, 2021

  • Federal Reserve Bank of St. Louis, "Business Applications with Planned Wages: Total for All NAICS in the United States," accessed Dec. 2, 2021

  • Email interview with Gary Burtless, senior fellow at the Brookings Institution, Dec. 2, 2021

  • Email interview with John Haltiwanger, economist at the University of Maryland, Dec. 2, 2021

This article originally appeared on Austin American-Statesman: Are there more small businesses now compared to before the pandemic?

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