January 1, Historic Corporate Bankruptcies Surge: Discover the Unsettling Reasons Behind It

A historic surge in U.S. corporate bankruptcies is occurring, with debt-ridden companies struggling in the face of high interest rates. S&P Global Intelligence reports that 75 companies filed for bankruptcy in June, the highest in a single month since early 2020. This brings the total number of bankruptcies in 2022 to 346, surpassing levels seen in the past 13 years.

Before this, the highest half-year figure recorded was in 2010, with 437 companies filing for bankruptcy from January through June.

The report cites high interest rates, supply chain issues, and slower consumer spending as contributing factors to the spike in bankruptcies.

The Federal Reserve raised interest rates sharply in 2022 and 2023, reaching the highest level since 2001. This ended over a decade of ultra-easy money. Officials now face the decision of when to slow down rate increases as economic growth appears to be slowing and inflation is falling.

Investors anticipate the Fed will begin cutting rates in September or November, with one or two reductions this year. This is a sharp contrast from earlier expectations of six rate cuts starting in March. However, rates will likely remain elevated.

Some economists, like Moody’s chief economist Mark Zandi, urge the U.S. central bank to cut rates sooner due to concerns over high interest rates posing risks to the financial system. Zandi wrote in a recent op-ed, “The economy has weathered the Fed’s higher-for-longer strategy admirably well, but there is a mounting threat that the ongoing pressure will expose fault lines in the financial system.”

Bankruptcies began to surge in April as companies continued to feel the burden of high interest rates and realized that rates would likely stay at peak levels for some time.

S&P noted at the time, “Fading hopes of lower interest rates are likely contributing to the increase in filings, as companies that may have held out hope for rate cuts at the beginning of the year come to terms with the reality that they will remain higher for longer.”

Some notable bankruptcies in June included electric-vehicle maker Fisker and Chicken Soup for the Soul, owner of DVD rental chain Redbox.

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