New business filings were starting to decline in Colorado weeks before the pandemic created a state of emergency, and once closure order came down, they dove sharply, according to a quarterly economic update from the Colorado secretary of state.
“You have to say the economy was weakening before the coronavirus put the kibosh on it,” said Rich Wobbekind, senior economist and faculty director of the Leeds Business Research Division at the University of Colorado Boulder, which prepared the report, during a video press conference.
New business and nonprofit filings dropped to 33,858 during the first quarter compared to 35,837 during the same quarter a year earlier. That represents a 5.6% decline.
New business formations are an important indicator of future job growth. The state has seen more than 300,000 workers file for unemployment assistance the past five weeks, and the drop in new business starts could contribute to weaker hiring for months to come.
“No industry can expect to make it through this pandemic unscathed,” said Colorado Secretary of State Jena Griswold during the call. “This health care crisis has been devastating for small businesses and everyday people, many of whom are struggling to pay their bills and feed their families.”
It is understandable why people who might have wanted to start a new business pulled back once the pandemic became apparent in March, Wobbekind said. What is tougher to decipher is why they were pulling back already in early February.
One possible explanation is that the labor market was so tight that some entrepreneurs held back over concerns about finding workers. Also, oil and gas prices were already softening earlier his year, which might have had an impact. Wobbekind notes that revisions to the state’s job numbers showed that hiring was much weaker than first estimated.
On a positive note, the number of businesses and nonprofits that renewed their filings with the state during the quarter came in at 172,267, an increase of 7.8% from the first quarter of 2019. The number of entities in good standing was up 3.7% on the year.
“This likely reflects the strength of the Colorado economy entering this downturn,” Wobbekind said.
Brian Lewandowski, executive director of the Leeds Business Research Division, said U.S. GDP dropped 4.8% in the first quarter, which confirms the country is in a recession. Much larger declines are expected in the second quarter, and he expects that Colorado’s economic decline will track with the U.S. averages.
Those looking to launch a business will hold off for the next few months, he predicted, but as the economy reopens, more entrepreneurs will step forward into the recessionary void.
“With any recession, you get some people who wind up being the creators of the next wave of jobs. That is the silver lining I’m looking for,” Lewandowski said.
There are already some signs of improvement. Homebase, a provider of payroll services to small and medium businesses, reported that 65% of its Colorado customers who were open in January had shut down as of April 12. By April 19, half were still closed and by Tuesday, 39% were still closed.
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