A recent report by S&P Global Intelligence has revealed a historic surge in corporate bankruptcies, with June experiencing the highest level of monthly filings since 2020. The total number of bankruptcies for this year has already surpassed levels seen in the past 13 years, reaching 346 as of June.
Various factors such as high interest rates, supply chain issues, and a slowdown in consumer spending have been cited as major contributors to the increase in bankruptcies. The Federal Reserve's decision to maintain interest rates at a relatively high level for nearly a year has also been highlighted as a potential risk to the economy.
While there was hope earlier in the year for a significant reduction in interest rates, resulting in lower bankruptcy rates, the spike in filings began in April as businesses realized that monetary policy would remain elevated. Analysts have expressed concerns about the impact of these bankruptcies on the economy, as well as the potential for a wave of commercial real estate defaults.
In addition to the rise in bankruptcies, retail spending has also been on the decline, with year-to-year sales volumes falling by 1.3% in the past three months. This trend has already started to affect quarterly earnings reports and has forced some retailers to make difficult decisions, such as closing underperforming locations.
Notable bankruptcies in June include electric vehicle maker Fisker and Redbox DVD rental operator Chicken Soup for the Soul Entertainment. The consumer discretionary sector has seen the highest number of bankruptcies this year, followed by healthcare and industrials.
Overall, the current economic landscape is challenging for businesses, with a combination of factors contributing to an increase in bankruptcies. The Federal Reserve's decisions regarding interest rates and consumer spending patterns will continue to play a significant role in shaping the future of the corporate sector.