Corporate Profits Hit Record High as Economy Boomed in Fourth Quarter of 2023​​​

Gross domestic product (GDP) and corporate profits both smashed expectations in the fourth quarter of 2023 as the knock-on effects of pandemic stimulus juiced the U.S. economy, The Hill reported. GDP came in at a 3.4% increase, below the massive bump of 4.9% in the third quarter but still above recent forecasts of 3.2%, according to Commerce Department data. Adjusted profits after taxes hit a record high of $2.8 trillion, beating the record of $2.7 trillion in the third quarter of 2022. Profits increased 3.9% on the quarter, above expectations of around 3.%. “Today’s report … revealed that corporate profits rose substantially in the fourth quarter to a new record high,” EY economist Lydia Boussour wrote in an analysis. “Before-tax corporate profits rose by the most since the second quarter of 2022, up $133 billion following a $109 billion advance [estimate].” “Profit margins expanded for a second consecutive quarter, up 0.3 percentage points to 12.2% of GDP as faster productivity kept a tight lid on unit labor costs,” she wrote. Inflation during the fourth quarter as measured by the “core” personal consumption expenditures (PCE) price index, which excludes food and energy categories and is an important metric for the Federal Reserve, fell to 2% in the third estimate, compared to 2.1% in the second. Updated monthly core PCE data, which stood at a 2.8% annual increase in January, comes out Friday. Expectations for a slowdown in the U.S. economy toward the end of 2023 were ubiquitous, with some predicting large spikes in unemployment, making the final estimates for fourth quarter performance all the more surprising. Read more.

Analysis: Has the Luxury E-Commerce Bubble Burst?​​​

Rosh Mahtani, the founder of the jewelry brand Alighieri, is celebrating the 10th anniversary of her company this year, according to a New York Times analysis. During Paris Fashion Week last month, buyers came to her showroom to select stock for the upcoming season, including MatchesFashion, a leading multibrand fashion retailer that is responsible for about half a million pounds, or $630,000, of Alighieri’s projected revenues. But there was a problem. “They had owed me 70,000 pounds [about $88,000] in unpaid invoices since October and had been asking for discounts on those bills,” Mahtani said last week. It made her uneasy, even if such bargaining was increasingly commonplace for independent brands like hers. Still, she said, she wasn’t quaking in her boots. “I don’t think any of us had a sense of what would come next.” Days later, MatchesFashion was put into administration in the U.K. Today, 200 brands are owed money and cannot access unsold inventory, and a furious customer base rages online about accessing orders or making returns. The implosion of MatchesFashion was the latest messy reckoning for companies that sell luxury goods online. Once the darlings of investors, many are in financial free fall. In December, Farfetch, a onetime e-commerce powerhouse for independent boutiques and beloved by the luxury heavyweights whose websites it powered, staved off bankruptcy thanks to an 11th hour acquisition by the South Korean e-commerce group Coupang and a $500 million bridge loan. (In 2021, Farfetch had a valuation of $40 billion.) During the first years of the pandemic, consumers splurged through such websites. More recently, questionable management choices, a volatile global economy and soaring luxury prices — and with big brands heavily investing in their own digital operations — constricted retailers’ ability to stand out in a competitive market, let alone make a profit​​​​​​. Read more.

February Retail Sales Up 0.6%, Yet Fissures Emerge in What Has Been a Driving Force for U.S. Economy​​​

Americans picked up their spending a bit in February after pulling back the previous month, but last month’s gain was weaker than expected, and January’s decline was revised even lower, suggesting that many are growing more cautious with their money, the Associated Press reported. Retail sales rose 0.6% last month after falling a revised 1.1% in January, dragged down in part by inclement weather, according to the Commerce Department’s report on Thursday. February’s number was also lifted in part by higher gas prices as well as higher auto sales and a rebound in building materials, which were depressed by severe weather in January. Excluding sales from gas stations and auto dealers, sales rose 0.3%. The national average gas price Thursday was $3.41 per gallon, per AAA, up from $3.39 a week ago and $3.26 last month. Government retail data isn’t adjusted for inflation, which ticked up 0.4% from January to February, higher than the previous month’s figure of 0.3%, according to the latest government report. So retailers only eked out a slight increase accounting for inflation. “February retail sales provide further proof that spending on discretionary goods in 2024 is likely to be soft following several years of strong growth and as consumer health — albeit still relatively strong — is somewhat weighed down by inflation and reduced savings,” said David Silverman, senior director at Fitch Ratings. The report also reflects an ongoing spending shift away from goods toward services. The snapshot offers only a partial look at consumer spending and doesn’t include many services, including travel and hotel lodges. But the lone services category — restaurants — registered an uptick of 0.4%. A strong jobs market and rising wages have fueled household spending, which also has become choppy in the face of rising credit costs and higher prices. Read more.

Average Long-Term U.S. Mortgage Rate Falls Slightly, Easing Borrowing Costs for Home Shoppers​​​

The average long-term U.S. mortgage rate fell slightly this week, welcome news for home shoppers facing rising prices and a stubbornly low inventory of properties on the market this spring homebuying season, the Associated Press reported. The average rate on a 30-year mortgage slipped to 6.79% from 6.87% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.32%. The average rate is now at its lowest level in a couple of weeks. Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also dipped this week, pulling the average rate to 6.11% from 6.21% last week. A year ago it averaged 5.56%, Freddie Mac said. “Mortgage rates moved slightly lower this week, providing a bit more room in the budgets of some prospective homebuyers,” said Sam Khater, Freddie Mac’s chief economist. “Regardless, rates remain elevated near 7% as markets watch for signs of cooling inflation, hoping that rates will come down further.” After climbing to a 23-year high of 7.79% in October, the average rate on a 30-year mortgage has remained below 7% since early December. It got up as high as 6.94% just a month ago, after stronger-than-expected reports on inflation, the job market and the economy clouded the outlook for when the Federal Reserve may begin lowering its short-term interest rate. Many economists expect that mortgage rates will ultimately ease moderately this year, but that’s not likely to happen before the Fed begins cutting its benchmark interest rate. Last week, the central bank kept its rate unchanged and signaled again that it expects to make three rate cuts this year, but not before it sees more evidence that inflation is slowing. The U.S. housing market is coming off a deep, two-year sales slump triggered by a sharp rise in mortgage rates and a dearth of homes on the market. The overall pullback in mortgage rates since their peak last fall has helped provide more financial breathing room for homebuyers. Read more.

U.S. Economy Continues to Shine with Help from Consumers, Labor Market​​​

The U.S. economy grew faster than previously estimated in the fourth quarter, boosted by strong consumer spending and business investment in nonresidential structures like factories and health care facilities, Reuters reported. The report from the Commerce Department on Thursday also showed profits rising at a solid clip last quarter, driven by nonfinancial corporations. Increasing profits, together with rising worker productivity, could encourage companies to retain their employees, and extend the economic expansion. The economy has shrugged off fearmongering about a recession following 525 basis points worth of interest rate hikes from the Federal Reserve since March 2022 to quell inflation. Though momentum has slowed, it continues to outpace its global peers. The report, which also showed underlying inflation pressures easing last quarter, did not change expectations that the U.S. central bank will start cutting rates by June. "The economy is in good shape," said Bill Adams, chief economist at Comerica Bank in Dallas. "It is operating on a more even keel than during the pandemic and its immediate aftermath." Gross domestic product increased at a 3.4% annualized rate last quarter, revised up from the previously reported 3.2% pace, the Commerce Department's Bureau of Economic Analysis said in its third estimate of fourth-quarter GDP. The revision reflected upgrades in consumer spending and business investment, as well as state and local government spending, which offset downgrades to inventory accumulation and exports. Economists polled by Reuters had expected GDP growth would be unrevised. Read more.

Applications for U.S. Unemployment Benefits Dip to 210,000 in Strong Job Market​​​

The number of Americans signing up for unemployment benefits fell slightly last week, another sign that the labor market remains strong and most workers enjoy extraordinary job security, the Associated Press reported. Jobless claims dipped by 2,000 to 210,000, the Labor Department reported Thursday. The four-week average of claims, which smooths out week-to-week ups and downs, fell by 750 to 211,000. Overall, 1.8 million Americans were collecting unemployment benefits the week that ended March 16, up 24,000 from the week before. Applications for unemployment benefits are viewed as a proxy for layoffs and a sign of where the job market is headed. Despite job cuts at Stellantis Electronic Arts, Unilever and elsewhere, overall layoffs remain below pre-pandemic levels. The unemployment rate, 3.9% in February, has come in under 4% for 25 straight months, the longest such streak since the 1960s. Economists expect some tightening in the jobs market this year given the surprising growth of the U.S. economy last year and in 2024. The U.S. economy grew at a solid 3.4% annual pace from October through December, the government said Thursday in an upgrade from its previous estimate. The government had previously estimated that the economy expanded at a 3.2% rate last quarter. The Commerce Department’s revised measure of the nation’s gross domestic product — the total output of goods and services — confirmed that the economy decelerated from its sizzling 4.9% rate of expansion in the July-September quarter. “We may see initial claims drift a bit higher as the economy slows this year, but we don’t expect a major spike because, while we expect the pace of job growth to slow, we do not anticipate large-scale layoffs,” wrote Nancy Vanden Houten, the lead U.S. Economist at Oxford Economics. Read more.

Register for ABI’s Annual Spring Meeting Before Rates Go Up This Weekend!​​​

Join ABI in our nation’s capital for the 2024 Annual Spring Meeting, one of the most significant annual gatherings of bankruptcy and insolvency professionals in the country! ABI’s Annual Spring Meeting, to be held April 18-20 at the Marriott Marquis in Washington, D.C., provides the ultimate in learning and networking opportunities for the insolvency community. This year’s conference features an ABI Talks plenary session on four fascinating subjects, the reveal of the Subchapter V Task Force’s Final Report, a luncheon keynote featuring NBC Chief Political Analyst Chuck Todd, a conversation with EOUST Director Tara Twomey, the inauguration of our next president and so much more. Don’t miss THE insolvency event of the year. Register by March 30 to save before rates go up!

Get Your Copy of The Purdue Papers to access Amicus Briefs and Commentaries Related to Purdue Pharma Case!​​​

A petition by the U.S. Trustee regarding the case of Purdue Pharma L.P. is currently being considered by the U.S. Supreme Court. Regardless of how the Court rules, the case has already generated a mountain of commentary in the form of amicus briefs, petitions and other related background material. ABI, guided by editor David R. Kuney (who represented one group of amicus filers), has gathered together all of this material in a fully searchable form — more than 3,000 pages worth! This collection will be updated with the final Supreme Court decision — expected later in 2024 — as well as a final commentary by ABI Editor-at-Large Bill Rochelle, who writes Rochelle’s Daily Wire. This collection is an invaluable resource for anyone working in the area of third-party releases, either as a practitioner, an academic or just an interested party. Get your digital copy for only $25!

Application and Nomination Period for ABI’s 2024 “40 Under 40” Class Open Through June 30 ​​​

The ABI "40 Under 40" annual program continues to highlight the best up-and-comers in the industry. If you are, or know of, a dynamic insolvency professional who is committed to growth and excellence both professionally and in your community, this is one opportunity not to be missed! Nominations and applications are due June 30. Click here for more information and to submit a nomination or application. 

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