For the first time on record, U.S. companies are actually dying at a faster rate than they're being born, according to an analysis by the Economic Innovation Group, a non-profit research and advocacy organization.
Why it matters: The slow rate of business starts means the U.S. economy is powered by a narrowing segment of companies, people and geographies — making the overall economy less resilient than it was after previous recessions. When fewer new companies are being born, it's less likely that the companies and jobs that are disappearing will be replaced by better ones. And without competitive pressures from upstarts, big companies are able to grow bigger faster, increasing industry consolidation.
"This is new territory for the U.S. economy," said John Lettieri, co-founder of EIG. "Firms that don't get created don't create jobs...The ripple effects are really hard to overstate."
The birth rate of new companies collapsed with the Great Recession, and the number of firms that opened during the recovery period is lower than that of any other post-recession period.
The U.S. economy is increasingly reliant on a few metropolitan areas' expansion of companies. Between 2010 and 2014, five metro areas produced the same net increase in firms as the entire rest of the country:
- New York
- Los Angeles
- DallasEssentially, this means that the number of markets with expanding bases of new companies are dwindling down to a few "hubs," a big departure from the previous three decades when almost all U.S. metro areas consistently created more than enough new companies to replace the ones that closed. In the 1970s, more than one-third of metro areas met or exceeded the national startup rate. By the 2010s, only one in seven metro areas matches or exceeds the national startup rate......MORE