Through August, 450 U.S. corporations have claimed bankruptcy, more than the total in either 2021 or 2022, according to a report by Guggenheim Investments.
The businesses failed largely due to higher costs, higher interest rates, and an uncertain economic future, the report said.
With inflation and the labor market cooling, “the economy should slow by the end of the year and we think a recession is likely by early 2024,” Guggenheim predicted.
TREND FORECAST: In “Corporate Bankruptcies to Reach 13-Year High, Data Indicates” (23 May 2023), we correctly forecast that business bankruptcies would grow in number. We forecasted corporate failures continuing to mount at a faster pace, especially if the U.S. Federal Reserve raises interest rates yet again this year.
Many companies borrowed to survive when interest rates were dirt cheap. Now as interest rates keep rising and their profit margins shrink, more businesses are finding it harder and-or too costly to borrow.
In addition, banks are becoming more stringent in what they require of businesses they lend to.
As a result, heavily leveraged companies are trying to pay their bills in a slumping economy presided over by skeptical lenders less likely to be interested in refinancing troubled debt.
The continued rise in bankruptcies will be mirrored by household bankruptcies. The failures will push more banks toward insolvency (see “Brace for a Wave of Bank Mergers, Experts Say” 18 Jul 2023) and push the U.S. economy closer to recession.