Meet the Author

Timothy Dunne |

Vice President

Timothy Dunne

Timothy Dunne is a former vice president and economist of the Federal Reserve Bank of Cleveland.

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Meet the Author

Kyle Fee |

Economic Analyst

Kyle Fee

Kyle Fee is an economic analyst in the Research Department of the Federal Reserve Bank of Cleveland. His research interests include economic development, regional economics and economic geography.

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12.11.07

Economic Trends

Business Establishments

By Tim Dunne and Kyle Fee

Besides providing data on employment, the Quarterly Census of Employment and Wages (QCEW) program also produces statistics on private business establishments. These statistics can tell us how the number of private business establishments has changed over time, as well as whether the number is growing at different rates in different states.  A business establishment is defined as a location—a store, an office, or a plant—where business activity takes place.  It may represent an entire firm or simply one location of multi-plant firm. The QCEW includes all business establishments that employ at least one worker, but excludes businesses without employees.

Looking across the 50 states, we see quite a range in the growth rates of the number of establishments.  Nevada had the highest growth rate (47.8 percent) from 2001 to the first quarter of 2007, while Washington had the lowest (-3.6 percent).  Washington’s low growth rate partially reflects the fact that the number of establishments in the state peaked in 2001, after it had risen substantially during the 1990s.

The Fourth District states of Ohio, Kentucky, Pennsylvania, and West Virginia stand out because they are all in the lowest quintile of the 50 states with respect to the growth in the number of business establishments over this period.  Ohio is ranked 48th, West Virginia,  47th, Pennsylvania, 46th, and Kentucky, 43rd.

The geographic distribution of establishment growth is shown on the U.S. map below, as well.  Fast-growth states are generally located in the West and South, while slow-growth states are in the Northeast, the Great Lakes region, and the Upper Midwest.

Comparing Ohio’s growth in the number of business establishments to the nation’s shows that Ohio’s economy has generated less growth than the overall U.S. economy in almost all industries.  Growth in the number of goods-producing business establishments was –7.0 percent; the U.S. growth rate was 6.0 percent.  The difference is largely due to strong growth in construction-related businesses.  Indeed, growth in manufacturing establishments looks similar for Ohio (-11.0 percent) and the United States as a whole (-9.4 percent).

Somewhat surprisingly, the only sector where Ohio’s growth in the number of business establishments exceeded the nation’s was in the information sector.  For the United States as a whole, the number of establishments providing information services actually fell from 2001 to the first quarter of 2007, while in Ohio it actually rose.  The reason for this, in part,  is that 2001 was close to the peak of the Internet boom, and the number of information services firms had expanded markedly in some states in the late 1990s but less so in Ohio.  The subsequent Internet bust affected information services more strongly in places where expansion had been particularly strong, like California.

The final chart shows the average size of establishments, measured in terms of number of employees, in the first quarter of 2007.  Again, Ohio is in a tail of the distribution.  The average-sized business in Ohio has 16 employees—the second-highest average in nation. Only Tennessee averages a higher number of employees at each establishment.