Corporate bankruptcies in the United States rose in May, based on the latest reports, with the first five months of 2023 seeing the highest number of filings since 2010.
Consumer discretionary companies accounted for the most number of bankruptcy filings so far this year, with 37 filings in the sector. This was followed by industrials with 31 bankruptcy filings, healthcare with 25, financials with 22, and energy with 11 filings.
Consumer staples and information technology saw 10 corporate filings each. Communication services had six filings, while utilities, materials, and real estate sectors registered three each.
Rising Commercial Bankruptcies
According to a June 2 press release by the American Bankruptcy Institute (ABI), commercial Chapter 11 bankruptcy filings rose by 105 percent in May 2023 from a year back.Chapter 11 filings for May 2023 came in at 680, up from 332 filings in May 2022, ABI said, citing data from partner Epiq Bankruptcy, the leading provider of U.S. bankruptcy filing data. Almost half of these filings were made by corporate subsidiaries.
Small business filings rose by 31 percent during this period to 149 in May 2023. Meanwhile, overall commercial filings also jumped 31 percent to 2,324.
“Rising interest rates, inflation, and elevated costs of borrowing can represent a daunting economic challenge to struggling families and businesses,” said ABI Executive Director Amy Quackenboss. “Amid these sustained economic pressures, bankruptcy provides financially distressed companies and households with access to a release valve.”
Bankruptcies and Recession
In a May 12 video on Twitter, researcher and economist Peter St Onge cited a UBS study stating that $10 million plus bankruptcies are now “running almost eight per week,” nearly double the peak level during the COVID-19 lockdowns.The worst of the bankruptcies don’t usually come early in a recession, he pointed out. Instead, they come a “year or two” into a recession. “And yet, here we are seeing them before the show even begins,” Onge said, indicating that a large number of bankruptcies are happening even though the United States is still to be hit by a recession.
Going by what happened during the 2008 financial crisis, “whatever happens in the first year of the crash, you’re in for three to four times more bankruptcies by the time it’s over.” Onge attributed the rise of recent bankruptcies to a key factor—“Banks aren’t lending.”
“That credit crunch means not only do we get bankruptcies like in any recession, on top of that, we get a lending wall that cuts off even the healthy businesses. Of course, their jobs go down with them.”
During the first quarter of 2023, U.S.-based employers announced 270,416 job cuts, which is a 396 percent increase compared to the 55,696 cuts in the first quarter of 2022. This is also the highest first-quarter job cut number since 2020, as well as the highest quarterly job cut since the third quarter of 2020.