Analysis: Corporate America Has Dodged the Damage of High Rates. For Now.​​​

The prediction was straightforward: A rapid rise in interest rates orchestrated by the Federal Reserve would confine consumer spending and corporate profits, sharply reducing hiring and cooling a red-hot economy. But it hasn’t worked out quite the way forecasters expected, according to a New York Times analysis. Inflation has eased, but the biggest companies in the country have avoided the damage of higher interest rates. With earnings picking up again, companies continue to hire, giving the economy and the stock market a boost that few predicted when the Fed began raising interest rates nearly two years ago. There are two key reasons that big business has avoided the hammer of higher rates. In the same way that the average rate on existing household mortgages is still only 3.6 percent — reflecting the millions of owners who bought or refinanced homes at the low-cost terms that prevailed until early last year — leaders in corporate America locked in cheap funding in the bond market before rates began to rise. Also, as the Fed pushed rates above 5 percent from near zero at the start of 2022, chief financial officers at those businesses began to shuffle surplus cash into investments that generated a higher level of interest income. The combination meant that net interest payments — the money owed on debt, less the income from interest-bearing investments — for American companies plunged to $136.8 billion by the end of September. It was a low not seen since the 1980s, data from the Bureau of Economic Analysis showed. While many small businesses and some risky corporate borrowers have already seen interest costs rise, the biggest companies will face a sharp rise in borrowing costs in the years ahead if interest rates don’t start to decline. That’s because a wave of debt is coming due in the corporate bond and loan markets over the next two years, and firms are likely to have to refinance that borrowing at higher rates. Roughly a third of the $1.3 trillion of debt issued by companies in the so-called junk bond market, where the riskiest borrowers finance their operations, comes due in the next three years, according to research from Bank of America. The average “coupon,” or interest rate, on bonds sold by these borrowers is around 6 percent. But it would cost companies closer to 9 percent to borrow today, according to an index run by ICE Data Services.  Read more.

Experts Recap Key Distressed Health Care Developments and Spotlight Upcoming Events on Special ABI Podcast​​​

Lee Pacchia of ICR (New York) interviewed members of ABI's Health Care Committee to discuss the health care trends that shaped 2023, what they expect for 2024, and upcoming events that practitioners should note on their calendars to help prepare for the year ahead. Pacchia was joined by Health Care Committee Co-Chair Cynthia Romano of FTI Consulting, Inc. (Palm Beach Gardens, Fla.), Committee Special Projects Leader Clare Moylan of Gibbins Advisors (Nashville, Tenn.) and David Gordon of Polsinelli (Atlanta). The conversation weaves through 2023 trends, 2024 expectations and upcoming events, including the health care panel at this week’s 2023 Winter Leadership Conference, a special abiLIVE on Dec. 11 being moderated by Moylan, health care programming at the 2024 ABI Annual Spring Meeting and ABI's 2024 Health Care Conference in Nashville in October. Listen to the podcast here. 
 

Consumers Pulled Back on Spending, Inflation Eased in October​​​

Americans slowed their spending in October and inflation continued cooling as the economy downshifted into fall after a fast-paced summer, the Wall Street Journal reported. Consumer spending rose 0.2% in October, down sharply from a 0.7% rise in September, the Commerce Department said Thursday. The October reading marked the slowest increase since May. The combination of ebbing income growth, high interest rates and prices, dwindling pandemic savings and the resumption of student loan payments is eroding Americans’ ability to keep boosting their spending as briskly as they did through the summer, economists say. Inflation has cooled markedly this year, likely bringing the Federal Reserve’s interest-rate increases to an end. Price growth as measured by the personal-consumption expenditures price index, the Fed’s preferred inflation gauge, remained mild in October. Core prices, which exclude volatile food and energy items, were up 3.5% from a year ago. They rose 2.5% at a six-month annualized rate, down from 4.5% in the six months through April, a dramatic improvement. (Subscription required.)  Read more.
 

Pending Home Sales Drop to Lowest Level in More than 20 Years​​​

Contract signings for existing homes logged their slowest pace in more than two decades in October, YahooFinance.com reported. Home sales under contract dropped 1.5% from the month before, according to the National Association of Realtors. The 71.4 index reading is the lowest since the index's founding in 2001. The drop in the index, a leading gauge used to assess the housing market’s health, still reflects how rising rates in October again unnerved budget-sensitive buyers and pushed pending sales in the resale market down by 8.5% annually. The average rate on the 30-year fixed mortgage surged a half-point during the month, jumping from 7.49% in the first week to 7.79% in the last one, according to Freddie Mac. (Since then, rates have fallen back.) The yield on the 10-year Treasury — which fixed mortgage rates tend to follow — momentarily eclipsed 5% at the end of October for the first time in 16 years as concerns piled on over the Fed’s stance that interest rates will remain "higher for longer." That meant only 37% of homes sold during the third quarter were affordable to families earning a typical income, down from 40.5% in the second quarter, per the latest National Association of Home Builders/Wells Fargo Housing Opportunity Index.  Read more.
 

Inaugural "Fresh Start" Podcast Provides Perspectives on Work/Life Balance​​​

In the inaugural "Fresh Start" podcast of ABI's Young and New Members Committee, Gabrielle G. Palmer of Onsager Fletcher Johnson Palmer LLC (Denver), the committee’s Special Projects Leader, talks with Karlene Archer, compliance manager of Skylight Lending, about issues and strategies concerning work/life balance for young professionals. Listen here. 
 

Jobless Benefits Applications Increase Modestly, but Continuing Claims Rose the Most in 2 Years​​​

Slightly more Americans filed for jobless claims last week, but the overall number of people in the U.S. collecting unemployment benefits rose to its highest level in two years, the Associated Press reported. Applications for unemployment benefits rose by 7,000 to 218,000 for the week ending Nov. 25, the Labor Department reported Thursday. However, 1.93 million people were collecting unemployment benefits the week that ended Nov. 18, about 86,000 more than the previous week and the most in two years. Continuing claims have risen in nine of the past 10 weeks. Labor's layoffs data today also showed that the four-week moving average of jobless claim applications — which flattens out some of the weekly volatility — fell by 500 to 220,000.  Read more.
 

Miss Any of the 25+ Hours of CLE Programming at CPEX23? Access All Replays for Only $100!

Leading practitioners over the past two weeks examined key issues across the consumer bankruptcy landscape during ABI’s 2023 Consumer Practice Extravaganza (CPEX). Did you miss any of the sessions, including an exclusive “Fireside Chat” with EOUST Director Tara Twomey and deep dives into student loans, technology and the future, subchapter V of chapter 11, tax issues and more? Get access to all replays via a state-of-the-art virtual platform for only $100! All sessions will conveniently remain available until Jan. 31!

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