Bankruptcies Down, New Business Formations Up

CIBC

  • Typically, during a recessionary period, businesses see their revenue decline, lay off staff and then some are forced to close their doors for good. However, thanks to the strength of government support thus far, total business bankruptcies have actually been lower than they were in 2019 (Chart 5, left).
  • Perhaps even more unusual than the decline in bankruptcies has been the surge in new business formations since the pandemic struck, which again is not something we’ve typically seen in previous recessionary periods (Chart 5, right).
  • Now, it is true that during the earlier part of the recovery, many of these new formations were not listed as “high propensity”, which meant that they were deemed unlikely to turn into companies with payroll. However, in Q3 there was a significant pick-up in those high-propensity applications as well. Because this is not a credit crisis, financial institutions have been willing and able to aid these new formations.
  • The surge in new business formation, coupled with stronger demand for some products/services and potentially a reluctance among some previous employees to return to work due to health concerns has resulted in another anomaly of the Covid-19 recession—a swift rebound in job openings
  • The Job Openings and Labor Turnover Survey (JOLTS) doesn’t get as much attention as it perhaps should, in part because we get the data with an apparently significant lag relative to non-farm payrolls. However, with the JOLTS survey taken at month-end, and payrolls during a survey week in the middle of the month, the lag isn’t as big as it seems. Moreover, at the present time, the JOLTS data are showing some interesting trends
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