New Business Formation Is Accelerating
Treasury Secretary Scott Bessent chided us this morning for not paying enough attention to the acceleration of business formation in the U.S., which he highlighted as one of the effects of the Trump administration’s pro-growth policies.
The numbers suggest Secretary Bessent has a point. This does deserve more of our attention. So here we go.
Speaking at Breitbart News’s “State of the Economy” event, Bessent pointed to the entrepreneurial surge as evidence that the administration is making America more business-friendly and “reprivatizing” the economy. He also highlighted artificial intelligence’s role in making it easier to start a business. (Watch the video of the event here.)
A Business Baby Boom
Americans filed 578,926 new business applications in July, an increase of 8.1 percent from June and 23.4 percent from a year earlier. That was the highest monthly total in the Census Bureau’s seasonally adjusted series, which stretches back to July 2004. It exceeded even the extraordinary July 2020 pandemic surge by 5.9 percent.
This is broader than a spectacular month. Applications increased in April, May, June, and July. The three-month average reached a record 547,848, up 9.8 percent from the preceding three months. Through July, the unadjusted count totaled 3.87 million, an increase of 13.8 percent from the same period last year and 79.4 percent from 2019.
Business applications surged in 2020 and 2021, as the economy re-opened from the pandemic lockdowns. But then they plateaued, fluctuating around that elevated level for several years. They declined 4.5 percent in 2024 after the Fed tightened interest rates to tamp down Bidenflation and years of regulatory red tape strangled business formation. The following year—which saw the return of Donald Trump to the White House—applications recovered 8.6 percent to a record 5.67 million. This year, they accelerated even further. The average monthly pace through July implies roughly 6.3 million applications annually if sustained.
These applications represent people taking a concrete step toward enterprise. They are putting business ideas into motion, a revealing expression of confidence in the opportunities available in the private economy.
AI Opens the Door
Applications in professional, scientific, and technical services rose 27.5 percent through July, supplying more than a quarter of the national increase. Information-sector applications jumped 34.2 percent. Construction applications increased 9.5 percent, and accommodation and food services rose 14.2 percent.
AI offers a plausible explanation for some of this strength. Work that once required hiring specialists can increasingly be handled by a founder using inexpensive software. Secretary Bessent’s example was a few architects starting their own firm and, thanks to AI tools, needing a much lower headcount and fewer support staff to launch on their own. More broadly, lower startup costs allow more ideas to become commercially practical.
Gusto’s survey of 1,051 founders who launched businesses in 2025 supplies direct evidence. Sixty percent said they used AI to help launch, and half said the technology made starting significantly faster or less expensive. Nasdaq’s research similarly found that sectors with high AI adoption accounted for nearly half the increase in applications outside the likely-employer category since February 2025.
Nor does operating with AI necessarily mean avoiding employees. Gusto found that 49 percent of businesses using AI in operations planned to expand headcount, compared with 41 percent of nonusers. Overall hiring plans reached a three-year high.
A Big Beautiful Boom
The Trump administration’s deregulation drive is reinforcing this technological opening. Trump’s directive that agencies identify at least ten existing regulations for repeal whenever they introduce a new one establishes a clear presumption against piling additional costs onto enterprise. Compliance costs are particularly burdensome for a founder who must handle the paperwork personally or pay someone else to do it. Reducing those burdens can lower the revenue a new business needs to become viable or the capital it needs just to get off the ground. The expectation of a friendlier regulatory environment also matters when deciding whether to risk savings on an enterprise that may take years to establish itself.
What’s more, the administration’s signature tax reforms encourage new business formation. The One Big Beautiful Bill restored and made permanent 100 percent bonus depreciation for qualifying investments, allowing businesses to deduct the full cost of eligible equipment in the year it enters service. That brings tax savings forward, improving cash flow for businesses able to use the deductions and reducing the effective cost of investment. The law also made permanent the deduction of up to 20 percent of qualified business income for eligible owners of pass-through businesses, removing a scheduled tax increase from their calculations. These provisions improve the prospective reward for starting and expanding a business. Combined with AI’s ability to reduce operating costs, they appear to be turning more entrepreneurial ideas into investments worth making.
More Enterprise, More Possibility
Research by University of Maryland economist John Haltiwanger and his collaborators shows that young businesses play a disproportionate role in job creation and productivity growth. Successful entrants expand, directing resources toward more productive activity. A small share of rapidly growing young firms contributes disproportionately to output growth.
The figures fit Bessent’s reprivatization argument. A welcoming policy environment improves the rewards for enterprise; technology lowers the cost of attempting it. Together, they can enlarge the pool of Americans willing and able to build something of their own.
Bessent was right to bring this to our attention. We should have been counting.
Read the full article here