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Small Business Management Article

Going Into Bankruptcy?


Raymond D. Matkowsky

In a quote that is often attributed to Mark Twain, F. Scott Fitzgerald, or Ernest Hemmingway, one is asked “How do you go bankrupt?” The answer is: “Slowly at first, then all at once.” Nations go bankrupt that way also. I believe the saying can also be applied to a recession.

I have been saying for months that the United States is on the cusp of a recession. The country is “slowly” going in that direction. I fear that many of our political and business leaders will find us in a recession “all at once.” I constantly hear the “good” economic news quoted. The general public thinks the economy is excellent. I do not hear the “bad” indicators mentioned. Every piece of good news goes hand in hand with a piece of troubling news. The U.S. government is feeding the public the good news and ignoring the “bad.”

Bureau Of Labor Statistics

For example, the United States Bureau of Labor Statistics Commissioner’s statement on June 7, 2019 indicated that employment in May only increased by 75,000. What is worse the good numbers for March and April were revised downward with new data. The March Count was revised downward from 189,000 to 153,000. April was revised downward from 263,000 to 224,000. The United States needs a monthly increase of 150,000 jobs just to keep even with population growth. Monthly job gains have averaged only 151,000 over the past 3 months. In 2018, employment gains averaged 223,000 per month. Slow decrease?

True, the jobs data does not in itself indicate a market “falling off the rails.” However, when this information is coupled with other factors some people begin to worry. Again for example, every one of the previous eleven recessions have been preceded by rising job numbers. A job growth of only 75,000 may indicate a job shortage in the future. Are we in the “slow” downward phase?

Employment Costs

Employment costs including benefits rose 0.7% for the last two quarters. A tight labor market would put even more upward costs pressure on companies. This is an old story that has happened many times before a recession.

Inventories and New Orders

There was a 5.7 point drop in the new order index in April. This fact points to a weakening demand in domestic orders. There was a 10.5 point loss in December 2018.

Inventories increased 0.6% during the first quarter of 2019. Not all of this was intentional and much of it resulted from a slowing economy. Inventories accumulation was also the major force in Gross Domestic Product (GDP) growth. This brings the significance of the GDP numbers into question.

According to Wells Fargo Securities, manufacturing activity in the United States fell to a two and a half year low in April, 2019. This certainly is not a good sign for the nation’s economy. The world economy is also slowing. This means less export activity to counteract slowing domestic demand. For the year (May 2018 to May 2019) exports are down 0.7%.


Between March and April of 2019, producer prices decreased 0.5% (seasonally adjusted) according to the Bureau Of Labor Statistics’ April 2019 report. The May 2019 report indicated that the final producer prices for goods went down 0.2% and services went up by 0.3% for the year. This maybe an anomaly for the months of April and May or it can be the beginning of a “slow” decreasing trend. Future reports may send a clearer message.

Trade tariffs will make many things more expensive. Cash that would normally be used to buy more goods is now tied up.

Corporate Debt

By far the biggest problem will be corporate debt. The United States Federal Reserve lowered interest rates to near zero with the hope of stimulating borrowing. Businesses considered this to be cheap money and went on a borrowing binge. However, they did not borrow to expand production as the Federal Reserve hoped, but used the money to buy back their own stock. They took on a great deal of debt that was not backed by potential sales.

Many of these businesses are suffering already since they cannot service their debt. They are closing their doors. Many will probably close their doors in the future.

Household Wealth

Household wealth increased a record 4.5% (annual) to US$108.6 trillion. This is the largest increase in history and is being paraded to the public. This increase, however, was largely attributed to a rise in the stock markets. I would remind everyone that the stock markets are not the economy.

84% of U.S. stocks are owned by 10% of households. 50% of all households own individually no stocks at all. Said another way, 50% of all households have not received any benefit from an increase in aggregate wealth.

This conclusion is born out in another recent survey of 3000 Americans conducted by Bankrate® of people who were adults during the recession of 2007. 23% now say that they are financially worse off than before the recession hit. Another 26% say they are doing about the same. The rest feel that their finances are better. Again, 49% of the respondents feel that they have received no benefit from the present economy. These people will not be aiding the economy!

Is A Recession Coming?

Is there a recession coming? The business cycle hasn’t been repealed, so definitely! The only question is when and will you survive? Will you be taken by surprise? If you listen to our politicians you will be because they seem to be cherry picking their data.

I urge you not to take anyone’s word for it. This includes my opinion. Look at all the data yourself. Convince yourself and prepare if you feel you should.

If you have any further suggestions, do not keep it to yourself. Help your fellow readers!

If you have any questions, comments or suggestions drop me a line at

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