Tag Archives: Michigan Small Businesses

Small Businesses Growth in Michigan is Occurring, But at What Pace?

by Drawing Detroit | Leave a comment

The growth of small businesses, or lack thereof, in Michigan varies depending on the sources.

While we know business closures have declined since the height of the pandemic and business applications continue to be submitted, anecdotes around employment in Southeastern Michigan tell a story that larger companies, which often have the capacity to offer higher wages and additional benefits, are gaining and retaining more employees than smaller businesses.

The data that we do know is that, according to a May 2022 press release from Gov. Gretchen Whitmer’s office there are 902,000 small businesses in Michigan which employ 1.9 million individuals.  We also know that unemployment in Detroit and Michigan has seen an overall decline. In September of 2022, according to the Michigan Department of Technology, Management and Budget the unemployment rate for the City of Detroit was 7 percent; the unemployment rate for the State of Michigan was 4.1 percent. These are two of the lowest unemployment rates each area has seen in over two years. When comparing unemployment rates by county between September of 2021 and September of 2022 we again see that unemployment rates for September of 2022 were down from the year prior. Overall, Livingston County had the lowest unemployment rate of 2.1 percent in September of 2022 and Wayne County experienced the largest decline with its unemployment rate changing from 7.3 percent in September of 2021 to 4 percent in September of 2022.

While low unemployment rates are one sign of a strong economy, according to a recent Detroit News article, 88 percent of respondents in a Goldman Sachs survey said small businesses are struggling compared to larger businesses. The reason? According to the survey, 42 percent of respondents said they lost employees to larger businesses that are paying more. With inflation continuing to rise, this is not surprising.

However, despite such challenges laid out by survey respondents, according to the 18th Annual Small Business Association of Michigan Entrepreneurship  Score Card, since 2020 small businesses in Michigan have outperformed the U.S. as a whole in terms of percent growth in businesses open and business revenue.

According to the scorecard, between January of 2020 and Feb. 6, 2022 small businesses in the State of Michigan have opened at a rate of 8.5 percent. In the U.S. small businesses have opened at a rate of 3.1 percent in that time frame. The Michigan rate represents an increase in small business revenue of 24.2% compared to 8% for the U.S., the report stated.

As displayed in the first chart below, the Southeast Michigan Council of Governments (SEMCOG) obtains data for the U.S. Census Bureau on small business applications in Michigan. According to this data, there 730 High-prosperity Business Applications during the week of November 18, 2022 and 250 Small Business Applications with Planned Wages. While the data for each category can shift somewhat dramatically from week-to-week, there is an overall trend of business applications in Michigan increasing since September of 2022 yet decreasing from both earlier in 2022 and since the beginning of the pandemic.

According to SEMCOG, high-Propensity Business Applications (HBA) are applications for a federal Employer Identification Number (EIN) where the characteristics of the application indicate that it is more likely to form a business with payroll. Businesses Applications with Planned Wages (WBA) are a subset of HBA that indicate a first wages-paid date, increasing the likelihood that such a business will have a paid employees.

While the data shows businesses continue to open in Michigan, business closures slowed through April of 2022 (The last time such data was available through SEMCOG) compared to early on in the pandemic. According to SEMCOG data obtained from through the Census Bureau’s Small Business Pulse Survey, 4.3 percent of the 900,000 single-location businesses sample size closed during the week of April 9, 2022. The highest percent closure of this sample size was 9.2 percent during the week of November 20, 2020.

One way to help keep small businesses open is to shop local. This is the goal of Small Business Saturday, which occurs the Saturday after Thanksgiving. This is a campaign that American Express began in 2010 to help support small businesses in the midst of the Great Recession. It has certainly seen success over the years, with 51 million shoppers in the U.S. spending more than $23 billion at small businesses in 2021, according to American Express. However, the real takeaway here should be that for every $1 spent at a small business, it is estimated that $0.68 of those funds remain in the local economy (or, for every $100 spent, $68 remains in the local economy). This is something we should consider as part of our regular shopping habits, and not just one day a year.