Most of the businesses that failed this year came from one sector of the economy

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Washington
CNN
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Small and micro businesses are struggling to survive. Many have drowned already this year.

346 companies filed for bankruptcy or re-organization through bankruptcy in the first six months of 2024, the highest half-year level since 2010 when 467 filed. S&P Global Market Intelligence. Last month, 75 companies filed for bankruptcy, the largest monthly total since the start of 2020.

Most belly-up businesses are considered „consumer discretionary,” a broad category of companies that sell goods or services that people don’t need every day, such as restaurants, clothing stores, and car dealerships. Most businesses are considered small or medium-sized, economists and investors tell CNN.

Interest rates are at very high levels In almost a quarter of a century, this squeezes not only consumers, but also businesses that rely heavily on borrowing to purchase equipment, replenish inventory, meet payroll and/or expand operations, to name a few key reasons. Access to credit is critical for small, private businesses that cannot raise money through financial markets. These days it has become difficult for them to even take a business loan to begin with. The latest is the Federal Reserve Bank of Kansas City A survey of 170 small businesses It showed that „lending standards have tightened and credit quality has declined for the tenth consecutive quarter.”

„Smaller companies are more at risk and more sensitive to higher borrowing costs,” Matt Rowe, head of portfolio management and cross-asset strategies at Nomura Capital Management, told CNN. „The increase in implied and actual defaults that the S&P report notes is largely coming from the small-cap region of the world.”

Consumer demand has been weak so far this summer, according to the Institute for Supply Management A recent study Businesses that sell any type of service. Recent spending data and comments from retailers in recent months have demonstrated that, unlike last year, American consumers are not overspending this summer and instead spending more carefully.

That’s a concern as summer is a critical season for businesses that offer many types of services. Last month, S&P Global reported that an arcade and a hotel management company filed for bankruptcy, citing „supply-chain issues” as another possible reason behind the run-up in business bankruptcies.

But this may not be a harbinger of future economic pain, which could be the removal of pandemic-related distortions in the economy.

„This is probably a story of normalization more than anything else,” Josh Jamner, investment strategist at ClearBridge Investments, told CNN. „There were many programs to support small businesses in the depth of the pandemic, and there were relatively fewer registrations than usual in 2021 and 2022.”

Zamner said the growing number of corporate bankruptcies may reflect many of the disturbances occurring in corporate America. New business applications started in 2020 and have remained high ever since, he said. Last year, 5.5 million applications were filed to start a new business, although that pace has slowed so far in 2024. Government statistics.

„As businesses are closing, we’re still seeing a lot of new ones being created,” he added.

The Federal Reserve has kept interest rates at a 23-year low for a year in an effort to control inflation. In good news for borrowers, inflation resumed its downward trend in the spring after stalling Earlier this year, it widened the central bank’s path.

Fed officials expect to cut interest rates at least once this year, which won’t provide much immediate relief, but could still be significant.

„Starting to cut rates is as important for businesses and consumers as rates will eventually be cut because it sets in operating rate cuts, which is a good thing,” said Reena Agarwal, director of Georgetown University’s Charros Center for Financial Markets. And policy, he told CNN. „There’s an important psychological impact to that because businesses don’t have to worry about rates going up.”

Small-cap stocks gained last week after the latest consumer price index came in weaker than expected, boosting rate cut prospects.

For example, my colleague Jean Sahadi reports that most banks offer free checking if customers have direct deposited their checks or maintain an average minimum balance.

As of 2023, the majority (73%) of checking account users take advantage of the option. Bankrate.com Census.

But if regulatory costs rise for banks and they follow Chase’s lead, free services like checking may disappear. said Marianne Lake, president of Chase Bank The Wall Street Journal Last week Chase may stop offering free checking and other free banking services.

„Consumer banking was based on banks offering free services to customers such as checking accounts, debit cards and electronic bill payments. The model relied on banks recouping those costs in the consumer banking business, such as debit transaction fees, overdraft fees, late fees and high interest rates,” wrote Jared Seeberg, a financial services analyst at TD Securities, in an analysis of Lake’s comments.

Read more here.

Monday: Earnings from Goldman Sachs and BlackRock. Federal Reserve Chairman Jerome Powell participates in a debate. San Francisco Fed President Mary Daly delivers comments.

Tuesday: Earnings from UnitedHealth, Bank of America, Morgan Stanley, Charles Schwab, PNC and State Street. The US Commerce Department releases May data on retail sales and business inventories in June. The US Labor Department reports export and import prices for June. The National Association of Home Builders releases its NAHB/Wells Fargo Housing Market Index for June. Fed Governor Adriana Kugler delivered the remarks.

Wednesday: Earnings from Johnson & Johnson, US Bancorp, Kinder Morgan, Discover, Las Vegas Sands, Equifax, Northern Trust, Citizens and United Airlines. The UK Office for National Statistics releases inflation data for June. The US Commerce Department releases statistics on housing starts and building permits for June. The Federal Reserve releases data on industrial production in June. Richmond Fed President Tom Parkin delivers comments.

Thursday: Revenue from Netflix, Novartis, Abbott Laboratories, Marsh & McLennan, Blackstone, Infosys, Cintas, M&T Bank, Nokia, Domino’s, American Airlines and ManpowerGroup. The European Central Bank announces its latest interest rate decision. Fed officials Lori Logan, Mary Daly and Michael Bowman provide comments.

Friday: Earnings from American Express, Schlumberger, Halliburton, Fifth Third Bancorp and AutoNation. Fed officials John Williams and Raphael Bostick provide comments.