With seemingly robust GDP numbers, it might seem like the US economy is firing on all cylinders. However, a closer inspection reveals some significant challenges that companies will encounter in the upcoming year. In our previous discussion, we delved into the effects of interest rates on small businesses, but it’s worth noting that these rates also have considerable influence over larger enterprises.
Corporations are facing a daunting challenge this year, with roughly 33% more debt to refinance, totaling a massive 1 trillion dollars or more due in each of the next four years. This, coupled with the prevalent “higher for longer” mindset, paints a concerning picture where corporations are expected to shell out significantly more in interest on their debts than they have in recent years. Consequently, they’ll likely need to tighten their belts in other areas, potentially reducing spending, which could adversely affect the economy.
Furthermore, there are troubling signs in the average weekly hours worked, despite the seemingly strong headline numbers. A closer look reveals a concerning trend of decline in hours worked over the past few years, as depicted in the chart. Historically, such declines have served as leading indicators of an impending recession as employers tend to shy away from layoffs initially, opting instead to reduce hours, making this decline a significant red flag for the economy.
Adding to the concerns is the fact that 639 U.S. corporations filed for bankruptcy in 2023. This figure marks a staggering 72% increase from 2022 and represents the highest number since the global financial crisis. Unfortunately, the bond market is also sending out warning signals, further exacerbating the economic unease.
When bond yields invert, with long-term rates dropping below short-term rates, it often signals a looming recession. As illustrated in the chart above, each instance of an inverted yield curve has typically been followed by a recession. While the onset of recessions may be delayed by several months, the reversal of the yield curve tends to serve as a key indicator. Once again, we find another recession indicator flashing red.
Given the multitude of economic crosscurrents, it’s crucial to seek the best assistance available to mitigate taxes, and manage expenses to navigate through potentially turbulent times.
Noren, Nordling, and Associates
