Corporate Bankruptcies Reach 14-Year Peak Due to Economic Pressures
In 2024, U.S. businesses faced a near-record number of bankruptcies due to stricter credit conditions and declining consumer discretionary spending that put a strain on corporate finances.
Corporate bankruptcy filings in the U.S. have surged to a 14-year peak as businesses continue to be pressured by tighter credit conditions and weakened consumer demand.
U.S. companies experienced ongoing pressure from high interest rates in 2024, alongside a record total debt of $8.453 trillion among credit-rated nonfinancial U.S. businesses, as reported by S&P Global Market Intelligence.
“Higher for longer is the mantra as we approach 2025,“ stated Greg McBride, chief financial analyst at Bankrate, in an email to The Epoch Times. “The Fed’s quarterly outlook projects a common expectation of only two interest rate cuts for next year, a shift from the previous median of four cuts anticipated in September.”
During a press conference on December 18, Federal Reserve Chair Jerome Powell noted that the inflation projections from September had “collapsed,” attributing the recent rise in inflation data as the primary reason. He reiterated the Fed’s dedication to reducing inflation to around the 2 percent target and did not dismiss the possibility of interest rate hikes if necessary.
“You don’t rule things completely in or out in this world,” Powell remarked.
Apart from the ongoing effects of elevated interest rates on U.S. businesses, declining consumer demand and a persistent slump in U.S. manufacturing have contributed to the record number of corporate bankruptcies. According to S&P Global Market Intelligence, companies in the consumer discretionary and industrial sectors topped the list of bankruptcy filings in 2024, accounting for 196 filings, which represents 28 percent of the total.
Businesses in the consumer discretionary sector have been especially affected by inflation and rising interest rates, which have squeezed household budgets and limited discretionary spending. As consumers hold back, these companies struggle with diminishing revenues and increasing financial pressure.
“Despite a new wave of optimism, consumers across various income brackets and generations plan to maintain subdued spending habits, especially for discretionary and luxury items,” the McKinsey report highlighted. “These spending intentions suggest that consumers are prioritizing long-term financial stability over immediate gratification.”
Deloitte found recent boosts in discretionary spending intentions; however, they still lag behind 2021 levels. Bain & Company described the American consumer’s stance as a “healthy spending posture” in late 2024 but indicated a potential slowdown as 2025 approaches.
“One area of concern was the December 2.4-point drop in spending intentions, largely driven by a 3.2-point decline among high-income earners, earning $100,000 or more annually, who account for most discretionary spending in the U.S.,” stated Karen Harris, managing director of Bain & Company’s macro trends group, in the report.
Overall, these reports suggest possible challenges ahead for U.S. companies in the consumer discretionary sector, potentially setting the stage for continued bankruptcy trends in 2025.