A significant surge in large-scale bankruptcies is poised to impact the US economy, potentially leading to substantial job losses for many Americans, warns Wall Street forecaster Danielle DiMartino Booth.
Danielle DiMartino Booth, CEO of QI Research, highlights the sharp rise in corporate bankruptcies over the past year, indicating businesses are grappling with higher interest rates and tighter financial conditions. Corporate bankruptcies surged by 88% through April this year, based on data from S&P Global.
This represents the highest number of bankruptcies recorded in the past 12 months, and Booth expects this trend to continue.
So far this year, nine companies valued at $50 million or more have gone bankrupt, marking the fastest pace of large bankruptcy filings since the pandemic. Booth predicts the number of large bankruptcies will climb to 25 by the end of June, surpassing the peak of large corporate bankruptcy filings during the pandemic.
"I think that the bankruptcy cycle kicking into high gear is going to be enough to tame inflation," Booth said in a recent interview on the David Lin Report. "When you have these large bankruptcies, liquidations, and what have you, you do have a loss of income. A complete loss of your paycheck," she added.
Although the US job market remains relatively strong, the unemployment rate has edged up to 4%. Over the past 12 months, the economy has lost around a million full-time workers, Booth noted.
Small businesses are also under pressure due to tighter financial conditions and higher wages. According to the latest Small Business Optimism Index, 10% of small business owners cited labor costs as their "single most important problem."
Companies are signaling a pullback in hiring and readiness to make job cuts. In May, 63,000 employers announced plans to lay off workers, while hiring slowed to its slowest pace year-to-date since 2014, according to a report from Challenger, Gray, and Christmas.
"These are very precarious times for small businesses that produce 40% of the jobs in America," Booth said.
Booth has previously argued that the economy is already in a recession due to weaknesses in the labor market. According to one unemployment indicator, the job market slipped into recession in October of last year. She anticipates more layoffs will hit the economy in the coming months.
