Economic Outlook – Bankruptcy Attorneys

The current economic expansion is aging, but is likely to continue for several more quarters. The charts below provide insight into the economic outlook for the remaining duration of the current economic expansion.

Majority of Evidence – Signs of Stability

Economic Outlook - Bankruptcy Attorneys
Source: United States Department of Economic Analysis at http://www.bea.gov/national/

The chart above illustrates our progress through the current business cycle and the length of the prior two cycles. The expansion in the 1990’s remains the longest in US history. The chart above indicates that real GDP growth for the four quarters ending June 2015 averaged a healthy 2.7%.

Economic Outlook - Bankruptcy Attorneys
Source: United States Bureau of Labor Statistics at http://data.bls.gov/timeseries/LNS14000000

Unemployment remains low (see chart above), while inflation remains under control (see chart below).

Economic Outlook - Bankruptcy Attorneys
Source: Federal Reserve Bank of Minneapolis at https://www.minneapolisfed.org/community/teaching-aids/cpi-calculator-information/consumer-price-index-and-inflation-rates-1913; note that the Fed has targeted a 2.0% inflation rate in recent years

The strong US dollar, weak oil and commodity prices and weak global growth are the primary contributors to today’s low inflation rate. Low inflation has allowed the Federal Reserve (the “Fed”) to leave the fed funds rate close to 0% for seven years.

Economic Outlook - Bankruptcy Attorneys
Source: United States Federal Reserve Board at http://www.federalreserve.gov/releases/h15/data.htm

The chart below shows the Fed raised the fed funds rate to fight inflation before each of the last two recessions. In this chart, corporate earnings are a proxy for economic growth. The Fed has not begun the tightening cycle which precedes business contractions.

Economic Outlook - Bankruptcy Attorneys
Correlation between corporate earnings and Fed Funds Rate

The yield curve remains a reliable predictor of the approach of the end of economic expansions.

Economic Outlook - Bankruptcy Attorneys
Source: M.G.J, “The IMF Urges the Fed to delay a rate rise”, The Economist, September 3, 2015

The yield curve represents the yield on US Treasury obligations of various maturities. The Fed raises short-term interest rates to reduce the current inflation rate. This effort consistently results in a circumstance where short-term rates rise to yields considered appropriate for long-term Treasury bonds in the final stages of economic expansions.

Minority of Evidence – Signs of Instability

The weak global economy has resulted in weak commodity prices, particularly weak oil prices.

Source: US Energy Information Administration at http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm

The weakness in oil prices has caused corporate earnings weakness for the last three quarters.

Economic Outlook - Bankruptcy Attorneys
Source: Standard & Poors Corporation https://us.spindices.com/search/?query-S%26P+500+earnings&Search=GO&Search=GO – “Index Earnings”

In the manufacturing sector, growth has almost slowed to contraction.

Economic Outlook - Bankruptcy Attorneys
Source: National Association of Purchasing Managers – Manufacturers’ Purchasing Managers’ Index

Energy sector weakness has a negative impact on companies that borrowed heavily when oil prices were expected to remain high.

Increasing distress in the energy sector has caused yields on syndicated loans to increase 100 basis points from May 2015.

Economic Outlook - Bankruptcy Attorneys
Source: Yield on Leveraged Loan 100 Index at http://www.leveragedloan.com

Similarly, more than $5.2 billion in funds have been removed from the loan market since mid-July.

Economic Outlook - Bankruptcy Attorneys
Source: Funds flow from syndicated loan market at http://www.leveragedloan.com

Conclusion

Several quarters remain before bankruptcy attorneys return to high employment. However, weakness in specific sectors should provide an increased flow of near term bankruptcy activity.

Footnotes

[1] Source: United States Department of Economic Analysis at http://www.bea.gov/national/

[2] Source: United States Bureau of Labor Statistics at http://data.bls.gov/timeseries/LNS14000000

[3] Source: Federal Reserve Bank of Minneapolis at https://www.minneapolisfed.org/community/teaching-aids/cpi-calculator-information/consumer-price-index-and-inflation-rates-1913; note that the Fed has targeted a 2.0% inflation rate in recent years

[4] Source: United States Federal Reserve Board at http://www.federalreserve.gov/releases/h15/data.htm

[5] Source: Standard & Poors Corporation at http://us.spindices.com/search/?query-S%26P+500+earnings&Search=GO&Search=GO – “Index Earnings” spreadsheet, Quarterly Data tab

[6] Source: United States Federal Reserve Board at http://www.federalreserve.gov/releases/h15

[7] Source: M.G.J, “The IMF Urges the Fed to delay a rate rise”, The Economist, September 3, 2015

[8] Ibid

[9] Source: US Energy Information Administration at http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm

[10] Source: Standard & Poors Corporation at http://us.spindices.com/search/?query-S%26P+500+earnings&Search=GO&Search=GO – “Index Earnings” spreadsheet, Quarterly Data tab

[11] Source: National Association of Purchasing Managers – Manufacturers’ Purchasing Managers’ Index

[12] Source: Kakouris, Rachelle, “Oil & Gas Cos Could See 40% Decline in Borrowing Base – Survey”, September 23, 2015 at www.leveragedloan.com/category/distressed-debt/

[13] Source: Yield on Leveraged Loan 100 Index at http://www.leveragedloan.com

[14] Source: Funds flow from syndicated loan market at http://www.leveragedloan.com

Print Friendly, PDF & Email
© 2018 ValueScope Inc. – Measure | Defend | Create