Fed economists just rang the alarm on the historic percentage of distressed US companies.
Around 37% of firms are in major trouble, which could worsen the fallout from the Fed’s rate hikes.
Investment, employment, and economic activity could all take a significant hit, researchers said.
. . . (T)he share of nonfinancial firms in financial distress has reached a level that is higher than during most previous tightening episodes since the 1970s
. . . The percentage of troubled US firms stands at about 37%, the pair of researchers said. That could lead to the Fed’s rate hikes having some of the most devastating effects of any of its tightening cycles over the past four decades, they added. The full extent of the damage should become clearer over the next 18 months, they said.
Thier research does make sense though.
As of last December a near record (roughly 42%) of publicly-traded companies were operating at zero profit for the year. Operating at zero profit during an economic boom generally means the company will be in serious trouble during a tightening.
I don’t have the means to update those specific figures, but a quick use of a Yahoo Finance tool indicates the current situation is not better than last December and may even be worse.
According to Yahoo Finance’s “stock screener”
51% of all publicly-traded US companies
(including 16% of those mid cap or larger)
are operating at a loss.
It’s just a screening tool. It’s only a rough estimate, but it does seem to confirm the earlier data from JP Morgan
Oh I am certainly not worried.
The core of their article is based on an relatively untested model.
It attempts to link such things as “how deep will the recession be” to “what percent of companies were in trouble just before the recession.”
And YES given our current leadership anytime a problem surfaces the gov’t is likely to print up money and throw money at the problem.
That said, the recession(s) of the early 80s hit pretty hard and, if their analysis is correct, the coming recession is likely to hit harder.