New business filings increase unexpectedly in Colorado

Colorado residents registered more businesses in the third quarter than they did in the second, a positive sign for future job gains in the state. But business dissolutions and delinquencies are also on the rise, a sign of economic stress, according to the Quarterly Economic Indicators Report from the University of Colorado Boulder and the Colorado Secretary of State.

Colorado recorded 43,657 new entity filings, which is a 14.5% increase from the third quarter of last year and a 10.6% increase from the second quarter. Looking at the most popular type, limited liability companies or LLCs, there was a 20.6% jump over the year. New business filings typically fall between the second and third quarters, and don’t usually accelerate heading into a recession, although people pushed out of a job will sometimes launch out on their own during a recession.

“We usually see a seasonal decline,” said Jena Griswold, Colorado Secretary of State, during a news call Tuesday morning, regarding the big jump in new business filings.

At the same time, there were 11,614 business dissolutions in the third quarter, which is a 27.1% decrease over the past year and down slightly from the second quarter. And the number of delinquencies, or businesses behind on renewing their registrations, was up 10.1% year-over-year.

Job growth remains strong, unemployment low and Colorado has the second-highest share of its adult population engaged in the labor force of any state at 69.5%. That ratio is above pre-pandemic levels, and as it moves higher, it should in theory leave a smaller pool of people available to start a business or other venture. But that assumes people who have a job don’t start side gigs.

There isn’t an easy way to get at who precisely is starting a business and why they are starting it, said Brian Lewandowski, executive director of the Business Research Division at the Leeds School of Business at CU Boulder. One clear trend during the pandemic was a big decline in the number of people holding multiple jobs.

It could be that Colorado residents are optimistic about the future and willing to launch a new business, a positive for the economy going forward. Or it could be that people are launching side gigs to create extra sources of income and stay ahead of inflation or prepare for a possible recession. That isn’t as positive a motive but does show a higher level of resilience and preparation.

And the higher counts could also reflect the lower business filing fees the state has implemented, which bring the cost of registering a new business down to $1.

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