Risky Reprise of Debt Binge Stars U.S. Companies Not Consumers
Consumers were the Achilles’ heel of the U.S. economy in the run-up to the last recession. This time, companies may play that role.
Among the warning signs: rising debt, lagging profits and mounting defaults. While the financial vulnerabilities aren’t likely to lead to another downturn soon, economists say they point to potential potholes down the road for an expansion that’s approaching its seventh birthday.
“Companies have been adding to their debt and their debt has been growing more rapidly than their profits,” said John Lonski, chief economist of Moody’s Capital Markets Research Group in New York.
“That imbalance in the past has usually led to problems” in the economy as companies cut back on spending and hiring.
Case in point: Last week’s news that so-called core capital goods bookings fell for the third straight month in April. The seasonally-adjusted total of $62.4 billion for non-defense orders excluding aircraft was the lowest in five years, prompting Neil Dutta of Renaissance Macro Research to label business investment “pathetic.”
The similarities between the pre-recession debt binge by consumers and today’s burst of borrowing by companies are striking. Like households, corporations are using the money for short-term purposes rather to prepare themselves for the future. They’re basing their bets on rosy expectations that may not pan out. And it’s the bottom 99 percent that are most at risk should credit conditions tighten.
more...
http://www.bloomberg.com/news/articles/2016-05-31/risky-reprise-of-debt-binge-stars-u-s-companies-not-consumers
= new reply since forum marked as read
