New businesses are typically very small, so they’re not necessarily a strong factor in overall job creation. But they are a first step in the important process of “creative destruction”—the replacement of old, unproductive businesses by new businesses with new ideas, technologies, and processes. Eventually some of these new businesses will grow and become important factors in the economy, and a healthy economy makes it easy for these new businesses to be created. FRED now has data that allow us to compare this process across U.S. states.
The Census Bureau tracks the quarter and the U.S. state in which business applications are made. Then it tracks the quarter in which the new business appears on payroll data. This quarter-to-quarter measurement is obviously coarse, but it averages out to meaningful value given the number of these applications. The map above shows the average length of this interval for all businesses that become active within 8 quarters of their application. Note: This data series doesn’t include businesses that take longer than 8 quarters to open or that never open.
The Census caps the interval at 8 quarters because, honestly, who wants to wait forever for the statistics? In fact, if you want them even more quickly, there’s a measurement after 4 quarters, which is shown in the map below. Take a look for yourself to see where in the U.S. you think businesses open faster.
How these maps were created: Search FRED for “business formation duration” and click on any 8-quarter state-level series. Scroll down on the graph page to look for the related material and click on the GeoFRED map. Zoom out to see the entire U.S. For the second map, click on the cogwheel and select the 4-quarter series.
Suggested by Christian Zimmermann.