The “no landing” nonsense is in fact nonsense.
Going out of business is a hard landing for the people that have to live through it. Commercial Chapter 11 filings were up 105% year-over-year in May to 680 versus 332 in the previous year and are up 68% year-over-year for 1H 2023. Tell those folks that there is “nothing to see here”. Many of these filings are small from a Dollar amount perspective to where you won’t read about them in the Wall Street Journal or other mainstream financial press.
Similarly, there have been thousands of small companies that have been forced out of business as the Fed has raised rates over the past year and a half. This cohort of small companies is too small to file for Chapter 11, they simply close their doors for business. This is obviously a drag on the economy as well.
Frankly, it is more than the Fed raising rates that has caused pain over the past couple of years in terms of companies closing their doors for business. It is the combination of the Fed raising rates combined with the fact that labor is scarce as a result of CARES Act benefits that are still flowing through the economy. Those benefits both allow labor to remain on the sidelines and drive up the cost of labor. I can’t tell you how many anecdotal stories I have heard of small companies that have to overpay in order to find people willing to work. Many of those hires don’t consistently show up for work knowing they are difficult to replace. This is the type of economic distortion that happens when a Central Government tries to manipulate an economy with a heavy hand.
I do believe that labor will become more abundant in Q3 – especially lower-level services labor – once the student loan reprieve ends in September.