28 November 2008
Euler Hermes ACI: US Business Bankruptcy Numbers Continue Upward Trend
The number of U.S. business bankruptcies continues to rise in 2007, as the third quarter filings showed yet another increase in the number of businesses seeking protection from creditors. The increase continues to reflect the business insolvency forecast produced by leading accounts receivable insurer Euler Hermes ACI earlier this year.
According to the U.S. Bankruptcy Courts, 7,167 businesses declared bankruptcy in the third quarter of 2007, bringing the total for 2007 to 20,152. The third-quarter figure shows a series of upward trends, including:
• A 7% increase over the second quarter of 2007
• A 35% year-over-year increase from the second quarter of 2006
• A 45% increase for the first half of 2007 in comparison to the first half of 2006
• The number of business bankruptcies through three quarters of 2007 (20,152) now eclipses the total number for 2006 (19,695)
The Euler Hermes business failures forecast is projecting a return to 30,000 business bankruptcies in 2007 – a 51% increase over 2006. This follows a spectacular, but one-off, reduction in business failures last year, when the number of corporate insolvencies dropped by 50% due to a 2005 change in U.S. bankruptcy legislation.
"Businesses today are facing serious headwinds from a slowing economy and an increase in the cost of doing business,” said Euler Hermes ACI Chief Economist Daniel C. North, who has said that the three most serious economic issues remain the effects of increased energy, raw material, and labor costs; the effects of monetary policy tightening by the Federal Reserve in 2004-2006; and the "decimated” housing market and its effects on consumers and businesses.
With business bankruptcy levels increasing, business leaders will need to be more vigilant regarding B-to-B accounts receivable by utilizing accounts receivable management products and services, such as trade credit insurance and third-party commercial collections.
Research by Global Insight Report - PDF
A study commissioned by the US Conference of Mayors and the Council for the New American City says US homes will fall by $1.2 trillion in 2008, and at least 1.4m homeowners will lose their properties to foreclosure.
It also predicts 1.9% US GDP growth in 2008, which would have been 1% higher were it not for the sub-prime mortgage crisis. It also says it will not "bring the economy grinding to a halt."