Number of US corporate bankruptcies in June recorded the highest number in the past 14 years: S&P Global

Are we standing at the threshold of a recession?

According to what S&P Global Market Intelligence announced, the number of US corporate bankruptcy applications in June reached a high level since the beginning of 2020. Approximately 75 new corporate bankruptcy applications were recorded last month alone, which is comparable to the busiest month of 2020, when many companies were forced into bankruptcy due to the Covid shock.

The number of bankruptcy filings in the US since the beginning of this year was 346, which is said to have surpassed the same figure for the past 13 years. This is because high borrowing costs, supply chain turmoil, and recession in private consumption have put pressure on companies that have fallen into management difficulties.

Since the Federal Reserve (Fed) left policy interest rates unchanged at a high level for the first time in 23 years for nearly 1 year, the number of bankruptcies increased rapidly. Policymakers are worried about the timing of scaling back tightening policies in response to indicators suggesting a slowdown in economic growth and a further decline in the inflation rate. Market participants are confident that the first rate cuts will be implemented in September, especially since the consumer price index (CPI) for June fell short of expectations.

By sector, the highest number of bankruptcy applications in 2024 was 55 consumer discretionary (XLY). The sector recorded 16 new applications during June. Below, healthcare (XLV) and industry (XLI) each had 40 cases, information technology (XLK) 20 cases, consumer-related (XLP) 19 cases, finance (XLF) 16 cases, materials (XLB) 11 cases, communication services (XLC) 10 cases, energy (XLE) 4 cases, and public utilities (XLU) 3 cases.

The consumer discretion sector includes companies that sell manufactured goods and services that individuals may want but are not necessarily necessary. Considering this, it would be reasonable to think that consumers are certainly slowing down discretionary spending in the face of rising inflation rates and remaining high borrowing costs, and rather prioritizing necessary expenses such as food, gasoline, and loan repayment.

Growth in private consumption expenditure (also known as private consumption) is on a downward trend, peaking in 2021/4, when a huge supply-demand imbalance caused inflation since the 1970s. According to the St. Louis Federal Reserve's FRED database, PCE in April 2021 rose nearly 30% from the previous year, greatly exceeding 5.1% in 2024/5. PCE inflation peaked in June 2022.

The environment surrounding small and medium-sized enterprises is also tough. Bill Dunkelberg, chief economist of the American Federation of Independent Businesses, said in a June report, “Main Street continues to be pessimistic about the economy throughout this year. “The increase in compensation costs is leading to an increase in prices. Meanwhile, relief from inflation is not in sight for small business owners preparing for months when the future is uncertain.

Still, the question remains whether America will be able to fend off a recession. SA analyst Damir Tokić cited recent increases in the number of new unemployment insurance claims and continuous unemployment insurance claims in addition to the shrinking manufacturing and service industries, and thinks it's too late. James Picerno, the same SA contributor, sees that “there is a possibility that the recession will begin as early as August, but it is still just a matter of guessing to see that far ahead.”