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 bookingsfell 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.’
This post was published at David Stockmans Contra Corner by Bloomberg Business ‘ May 31, 2016.
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