Danielle DiMartino Booth, a well-known Wall Street forecaster and CEO of QI Research, issued a stark warning about an impending wave of corporate bankruptcies in the United States.
She cited data from S&P Global, noting that the number of large corporate bankruptcies has risen sharply, with U.S. corporate bankruptcies increasing 88% in April 2023. The surge was the highest monthly record in the past 12 months, indicating that many companies are struggling under the pressure of rising interest rates and tightening financial conditions.
Booth specifically pointed out that nine companies with assets worth $50 million or more have filed for bankruptcy in the first half of this year. The pace of such large corporate bankruptcies is the fastest since the peak during the COVID-19 pandemic. Looking ahead, she predicts that the number of bankruptcies may rise to 25 by the end of June, exceeding the peak during the pandemic.
The impact of bankruptcy is not limited to corporate balance sheets, but also involves the broader labor market. Booth pointed out that in the past year, about 1 million full-time jobs have been lost, reflecting the potential challenges to the economy's ability to maintain employment growth. Data also showed that the U.S. unemployment rate had risen to 4% in May.
Booth believes that rising corporate bankruptcies could have a disinflationary effect, squeezing incomes through increased unemployment and business closures. This economic pressure could dampen inflationary trends, but at the cost of higher unemployment and reduced consumer spending power.
In addition, indicators other than the unemployment rate also point to widespread fragility in the labor market. Indicators such as revised job growth, rising quits and sluggish hiring all indicate that the labor market is experiencing similar pressures to those in previous recessions. Small businesses, which play a key role in creating jobs, are particularly vulnerable. According to the Small Business Optimism Index, labor costs are considered the most pressing issue by 10% of small business owners.
Looking ahead, the implications for the overall economy are huge. Booth believes that the U.S. economy may already be in a recession, based on her assessment of various economic indicators and the apparent weakness in the labor market. Recent reports support this view, showing a slowdown in hiring and an increase in employers' planned layoffs.
All in all, Booth's prediction of an impending wave of large corporate bankruptcies highlights the growing economic challenges facing the U.S. As companies grapple with financial strains exacerbated by rising interest rates, the likelihood of widespread job losses and economic contraction grows. Policymakers, businesses, and investors alike need to navigate these uncertainties with caution, mindful of the potential impacts on employment, inflation, and overall economic stability.
The article is forwarded from: Jinshi Data
