[City Journal] Many believe that this year’s midterm elections will hang on the economy, and most available evidence suggests that the economic picture is mixed. Positive signs, however, might change political calculations before the vote.
Present circumstances leave room for both hope and doubt. Job numbers keep expanding but at a less than compelling pace. Real incomes have grown over the last 12 months but not quickly enough to dispel anxieties. Inflation, though slowing, remains above the 2 percent annual target preferred by the Federal Reserve, and nothing suggests that living costs will moderate enough to relieve the burdens imposed by the 2022 inflation surge. The jury remains out on the ultimate economic effects of the Trump administration’s tariffs and deregulation.
However, two encouraging, if less well-known, signals have emerged. New business formation has surged over the last 12 months, as have business investments in new technologies and equipment. Both point to future hiring and income growth. If this news doesn’t banish all ambiguity, it does indicate something substantively positive about the economic outlook and points to surprising confidence within the business community, despite otherwise disruptive policies coming out of Washington.
The Department of Commerce recently reported that about 535,000 new business applications were filed last November, the most recent period for which data are available. That number is up a striking 7.1 percent from October’s figure and over 30 percent ahead of the pace of business formation a year ago. What’s even more compelling is how suddenly the growth took off this year, after three years of near stagnation. New business formation had hit records in 2021 as the economy recovered from the Covid pandemic. Clearly, entrepreneurs saw opportunities in the bankruptcies imposed by the 2020 lockdowns and quarantines. But as 2021 wore on, the pace of new business formation slowed again and held to that reduced pace through 2024. This year’s surge has recovered the 2021 records.
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