New businesses play an important role in fostering job creation, innovation, and economic growth. A common measure of business dynamism relates to the number of new firms or establishments entering the market.

In this FRED blog post, we identify the states with the largest and smallest growth rates in the number of business applications across all industries relative to 2005: We adjust the data* by the state’s resident population, set an index value of 100 in the year 2005, and graph the top 5 and bottom 5 states as of 2022.

So, where is business booming in the US? The FRED graph above shows the five states with the largest growth rates in the number of business applications between 2005 and 2022. Wyoming, Delaware, Mississippi, Georgia, and Louisiana lead the nation for growth in new business applications adjusted by their populations. For instance, in 2022, the number of new businesses in Wyoming was seven times greater than it was in 2005. In Delaware, the number was three times greater.

The second graph shows the bottom five states: Nevada, New Hampshire, Maine, Minnesota, and Massachusetts had the lowest growth rates in the number of new businesses relative to 2005. In 2022, the number of new businesses in Nevada was almost the same as it was in 2005, while in New Hampshire it was only 21% greater than it was in 2005.

All states experienced some increase in the number of new businesses between 2005 and 2022. But why is business formation so strong in the first group of states? These states have low (or no) corporate and personal state income taxes as well as privacy laws regarding the ownership of businesses. Taxation and business laws play an important role when deciding where to incorporate a new firm.

But could this be the result of unusual data in 2005? To answer that question, we also assess whether 2005 was an outlier by computing the growth rate in new businesses relative to 2006 and 2007. Although the growth rates are smaller at the top, Wyoming, Delaware, and Mississippi are still the leading states in business formation. The number of new businesses grew fivefold in Wyoming and doubled in Delaware between 2006 or 2007 and 2022. In contrast, Nevada and New Hampshire remain the least dynamic states with similar growth rates in new businesses for 2005, 2006, and 2007.

*FRED has data on business applications for an employer identification number (EIN) from the Census Bureau’s business formation statistics, available at the state level starting in July 2004 for all industries as well as for specific industries. FRED also has population data at the state level.

How this graph was created: In FRED, search for and select “Business Applications: Total for All NAICS in Louisiana.” From the “Edit Graph” panel, click the “Edit Line” tab: Modify the frequency to annual, and in the “Customize data” field search for and add “Resident Population in Louisiana.” In the “Formula” tab, type in a/b. Change the units to “Index” with a custom scale of “2005-01-01.” Have the date range as “2021-07-04” to “2022-07-04.” Finally, go to the “Format” tab and change the graph type to “Bar.” Repeat these steps for Wyoming, Delaware, Mississippi, and Georgia to create the first graph. Repeat these steps for Nevada, New Hampshire, Maine, Minnesota, and Massachusetts to create the second graph.

Suggested by Ricardo Marto and Hoang Le.