The Economy Faces New Pressures as Corporate Bankruptcies Increase

Business bankruptcies in the United States are on the rise again following a two-year lull, brought on by mounting pressure on the economy. Unless a deal is made to prevent the government from defaulting on its debts, the situation will only continue to worsen. S&P Global Market Intelligence reports that large companies have been hit the hardest, with 236 bankruptcy filings in the first four months of this year, double the amount in 2022. Well-known companies with hundreds or thousands of employees have filed for bankruptcy protection. Business bankruptcies have been slowly rising across all types of businesses, both large and small.

According to chief economist Mark Zandy, although the number of filings is below pre-pandemic levels, a “tsunami of bankruptcies” would occur should US defaults on its debt and a deal was not reached on a debt ceiling. He believes that companies would suffer from poor sales and run out of cash very quickly, ultimately leading to layoffs, investment cuts, and bankruptcy. Interest rates rising, pandemic-era government support drying up, and sales growth slowing amid a cooling economy have all contributed to the rise.

In the retail industry, companies selling non-essential consumer goods have been the most affected, due to Americans holding back spending amid high inflation. Some notable recent victims include plant-based Pizza Boston and catalog retailer Amerimark Interactive. Last month, dress retailer David’s Bridal filed for bankruptcy and laid off over 9,000 employees nationwide, citing economic uncertainty.

Large, indebted corporations have also been hit hard by the end of easy money. Vice Media’s bankruptcy filing revealed that the company had been cash-flow-poor for years and had to borrow heavily to fund its operations, and had become more costly to refinance those loans as interest rates rose. Envision Healthcare, a hospital staffing firm, also struggled with rising interest rates before filing for bankruptcy.

The total number of business bankruptcy filings across all types of businesses in the US district courts during the first quarter was up from the same period last year, although still below pre-pandemic numbers. Low interest rates made it easier for companies to borrow money, but as economic conditions changed, retailers’ fortunes plummeted. The rise in bankruptcies is a cause for concern, and it is hoped that a solution can be found to prevent any further escalation.

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