Danielle DiMartino Booth, a prominent Wall Street forecaster and CEO of QI Research, has issued a stark warning about an impending wave of corporate bankruptcies in the United States. She points to a significant uptick in bankruptcies among large corporations, citing an 88% increase through April 2023, according to data from S&P Global. This surge represents the highest number of bankruptcies recorded in the past year, suggesting that many businesses are struggling under the weight of rising interest rates and tighter financial conditions.
Booth specifically notes that nine companies with assets valued at $50 million or more have already filed for bankruptcy in the first half of this year. This pace of large bankruptcies is the fastest since the peak seen during the COVID-19 pandemic. Looking ahead, she anticipates that the number could rise to 25 by the end of June, surpassing previous highs.
The implications of these bankruptcies extend beyond corporate balance sheets to the broader labor market. Despite the headline unemployment rate remaining relatively low at 3.7%, Booth highlights troubling signs of weakness beneath the surface. Over the past year, approximately one million full-time jobs have been lost, reflecting underlying challenges in the economy’s ability to sustain employment growth.
Booth argues that the rise in bankruptcies could have a deflationary effect, contributing to a reduction in income through job losses and business closures. This economic pressure could potentially curb inflationary trends, although it comes at the cost of increasing unemployment and reducing consumer spending power.
Moreover, indicators beyond the unemployment rate point to broader labor market fragility. Metrics such as job gain revisions, elevated quit rates, sluggish hiring rates, and increased unemployment changes all suggest that the labor market is experiencing stress similar to previous recessionary periods. Small businesses, which play a crucial role in job creation, are particularly vulnerable. According to the Small Business Optimism Index, labor costs are identified as the most pressing concern for 10% of small business owners.
Looking ahead, the implications for the broader economy are significant. Booth argues that the US may already be in a recession, based on her assessment of various economic indicators and the pronounced weakness in the labor market. This view is supported by recent reports indicating a slowdown in hiring and an increase in planned layoffs by employers.
In conclusion, Danielle DiMartino Booth’s forecast of an imminent wave of large corporate bankruptcies underscores the deepening economic challenges facing the US. As businesses struggle to cope with financial pressures exacerbated by higher interest rates, the potential for widespread job losses and economic contraction looms large. Policymakers, businesses, and investors alike will need to navigate these uncertain waters with caution, mindful of the potential impact on employment, inflation, and overall economic stability.