The US Economic Quagmire: With Rising Corporate Defaults, Low Unemployment, High Layoffs, High Interest Rates, And Slow Growth -- It's Like A Maze Within A Maze
The US economy has long been a world leader in innovation, productivity, and overall growth. However, despite its many successes, the country's economy is now experiencing a complex quagmire of issues in recent years.
Not only is the US economy suffering from supply chain crises, war complexity, and labor shortages, but so are other economies. In the US economy, the situation is very dire and perplexing.
Because, while the unemployment rate is falling, the rate of inflation, according to the Department of Labor, is rising. The country's unemployment rate was 4.2% in January, but it fell to 3.4% in February, a significant improvement from the peak of 14.8% in April 2020, but it remains higher than the pre-pandemic level. However, GDP growth in the fourth quarter has been cut by 0.2% to 2.7%, down from the 2.9% previously forecast.
The US economy is currently following Phillips' curve. The curve is related to the unemployment rate and the inflation rate, and the relationship between the two is inverse. As a result, the economy is experiencing lower unemployment while inflation is rising.
It is giving birth to several problems, one of which is that the US corporate default rate is expected to rise in 2023, according to Moody's.
According to its reports, corporate defaults in the United States will rise from 2% last year to nearly or more than 6% this year. In the worst-case scenario, the actual rate of default could prove to be much higher, rising to 17.7%.
The most prominent reasons for this debacle are the Federal Reserve's aggressive increase in interest rates, the Ukraine conflict, the supply chain crisis, and the slowdown in the Chinese economy.
It is also there in the report that the number of non-financial corporate defaulters will more than double to ten in the fourth quarter of 2022, up from five in the third quarter. According to the report, 32 corporate families defaulted on their debt in 2022, up from 21 in 2021.
Nearly 70% of defaults occurred on distressed exchanges, in which failing companies replaced their existing debt with a less burdensome debt load.
Simultaneously, the number of credits rated B3 negative or lower reached 218 by the end of the year, the highest number since September 2021 and a sign of more defaults to come.
According to Moody, chemicals, metals and mining, paper and forest products, and the shipping industry will face more problems than other industries. Meanwhile, the travel-related industries are expected to recover with higher profit margins in 2023.
Many companies in the technology industry are laying off workers due to market stress. According to the tracking site Layoffs.fyi, tech companies shed more than 150,000 workers in 2022.
According to the same tracking website, in 2023, 417 tech companies have already shed 1,19,034 employees, and more layoffs are expected as growth in the world's biggest economies starts to slow. In this sector, job losses have increased by 212% since the year 2021.
In addition to these issues, the United States is witnessing battles between US corporate houses and labor organizations. Recently, US corporations have launched a fierce counterattack against union drives at Starbucks, Amazon, and other companies, and in response, federal officials are working around the clock to crack down on those corporations' illegal anti-union tactics - maneuvers that labor leaders fear will significantly erode the momentum behind today's surge of unionization.
Therefore, the US economy, more than any other issue, requires greater attention from US policymakers. Because, if the economy is strong, other issues will be resolved automatically; otherwise, the US economy's greater dominance will fade with time.