A wave of large bankruptcies is looming on the horizon

A recession isn't coming, it's already here, says QI Research CEO Danielle DiMartino Booth
By Connor Sephton
•
21 June 2024
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economy, lost decade

An influential Wall Street researcher is sounding the alarm on a tsunami wave of large bankruptcies.

Speaking to Youtuber David Lin, QI Research CEO Danielle DiMartino Booth said there were 66 fresh bankruptcy filings in April, the highest in a year. Nine of them are $50+ million businesses.

With the Federal Reserve reluctant to cut interest rates, inflicting further pain on cash-strapped firms, she believes many more large businesses will follow suit.

Although Booth thinks that bankruptcies will play a big role in dragging inflation back down to more sustainable levels, she went on to warn there will be a human cost.

"When you have these large bankruptcies, liquidations, you do have a loss of income. A complete loss of your paycheck," she explained.

On the face of it, the U.S. labor market looks robust—with 272,000 jobs added in May, 50% higher than what economists had predicted. But underneath the surface, there are signs of distress.

For the past 29 months, small business owners have been less confident than the historical average, according to the Small Business Optimism Index. 10% of them warn that labor costs are their top concern.

That's a worrying sign given small businesses account for 40% of America's GDP and employment.

The recession is already here

Booth pointed out that Federal Reserve chair Jerome Powell will not cut rates until inflation returns to "sustainable" levels. "I think if we get anything close to 2.5% or 2.4%, they'll be satisfied," she added.

Meanwhile, businesses are feeling the strain.

Last month, research by Coresight showed that more than 3,000 physical stores had already shut their doors for good so far in 2024—up 24% compared with the same period in 2023.

This has been further compounded by a 4% reduction in new openings, meaning jobs created in retail are outnumbered by those being lost.

Family Dollar, whose business model is especially vulnerable to inflation, has been responsible for about one in five of these closures.

The losses are so big that the chain's owner, Dollar Tree, has seen its own financial results dragged down by a company it snapped up for $9 billion in 2015.

Booth has repeatedly argued that it's too late to contemplate the threat of a recession; one is already here, as evidenced by America's inability to contend with today's cost of living.

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