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Case for a Severe Slowdown in U.S. Economy Gets Stronger

If you only look at the headline data for the U.S. economy, it will probably make you feel good. It almost tells you that nothing is wrong. Growth is intact and everything seems fine.

Sadly, things aren’t as rosy as they look. There are some serious problems brewing in the U.S. economy, and they make a case for a severe recession in the coming quarters.

The first thing you should ask when assessing the health of the U.S. economy is how businesses are doing. Strong business performance means more jobs, higher salaries, and so on.

The key stock market indices are at record-high levels, and earnings look great. However, there’s something else that might not get mentioned much in the mainstream financial press: there’s been a significant increase in corporate bankruptcies and job cuts in the U.S. economy.

Corporate Bankruptcies Surged 73% in 2023

Consider this: from 2022 to 2023, corporate bankruptcy filings in the U.S. went up by 72.6% from 372 to 642. (Source: “US Bankruptcies Hit 13-year Peak in 2023; 50 New Filings in December,” S&P Global Market Intelligence, January 9, 2024.)

How significant is this figure? It’s the highest annual number of corporate bankruptcy filings in the country since 2010!

Surely, one could argue that this is all due to higher interest rates, and there’s some validity to that argument. But bankruptcies surging to a 13-year high very quickly shouldn’t be taken lightly whatsoever.

Job Cuts Soared 136% in January

Beyond corporate bankruptcy filings, businesses in the U.S. have really started to brace for something worse in the U.S. economy. This is being seen through their job cuts/layoffs.

Consider the Challenger Report, which is issued by Challenger, Gray & Christmas, Inc., a global outplacement and business and executive coaching firm. This report tracks the number of job cuts announced by U.S.-based firms.

The latest version of the report states that U.S.-based businesses announced 82,307 job cuts in January 2024. That was an increase of 136.4% from 34,817 job cuts announced a month earlier. (Source: “Job Cuts Announced by US-Based Companies Surge 136% to 82,307 to Begin 2024; Financial, Tech Lead,” Challenger, Gray & Christmas, Inc., February 1, 2024.)

How significant is this? If you remove the job cuts that U.S.-based companies announced in January 2023, this would be the highest number of job cuts in the U.S. in the month of January since 2009.

In January 2023, the job cuts were primarily concentrated in the tech sector. In January 2024, the financial sector took the lead in job cuts. During the month, U.S.-based financial firms announced 23,238 layoffs, which was the highest number of monthly job cuts for the sector since September 2018.

What Will Happen to the U.S. Economy in Next Few Quarters?

Dear reader, I really have to ask: How is it that everything looks great on the surface, but underneath, the economic conditions are getting worse? The U.S. has been breaking decade-or-more records in a bunch of datasets, yet we’ve been hearing calls for the U.S. economy to remain resilient for an extended period.

Here’s what I know: this is nothing new. I remember back in mid-2007, the economic data looked great on the surface. We were in a very feel-good U.S. economy. At the time, if you had asked anyone if something bad was coming, you’d be called names. Key stock indices were soaring and corporate profits were great. Just a few quarters later, things started to break.

I suspect that the U.S. economy is in for a rude awakening in the coming quarters. It’s possible that the conditions won’t get as bad as they were during the Great Recession, but one shouldn’t get too complacent.

If a slowdown is approaching for the U.S. economy, the stock market remains a dangerous place to be. A bottom in the stock market doesn’t fall into place until a recession has peaked.

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