The US economy is headed into a corporate bankruptcy cycle that will spike unemployment, veteran forecaster says

• The US is heading into a bankruptcy cycle that could spark more job losses, Danielle DiMartino Booth said.
• The veteran forecaster pointed to the rise in large bankruptcies so far this year.
• June could see a rise in large bankruptcies, raising unemployment, she predicted.

A wave of large bankruptcies is about to hit the US economy — and that could spark job losses for a growing number of Americans, according to Wall Street forecaster Danielle DiMartino Booth.

The QI Research CEO pointed to the climb in corporate bankruptcies over the past year, a sign that businesses are struggling under higher interest rates and tighter financial conditions. Corporate bankruptcies rose 88% through April this year, according to data from S&P Global.

That marks the highest number of bankrupcies recorded in the last 12 months, and that tally should continue to rise, Booth said.

Nine companies worth $50 million or more have failed so far this year, the fastest pace of large bankruptcy filings since the pandemic. Booth predicted that the number of large bankruptcies would climb to 25 by the end of June, surpassing the peak of large corporate bankruptcy filings during the pandemic.

"I think that the bankruptcy cycle kicking into high gear is going to be enough to tame inflation," Booth said in a recent interview on the David Lin Report. "When you have these large bankruptcies, liquidations, and what have you, you do have a loss of income. A complete loss of your paycheck," she said.

The US job market remains on solid footing, but the unemployment rate has ticked up to 4%. Meanwhile, the economy has lost around a million full time workers over the last 12 months, Booth noted.

Small businesses are also feeling the pressure of tighter financial conditions and higher wages. 10% of small business owners said labor costs were their "single most important problem," according to the latest Small Business Optimism Index.

Companies have signaled that they're pulling back on hiring and ready to make job cuts. Another 63,000 employers announced plans to lay off workers in May, while hiring fell to its slowest pace year-to-date since 2014, according to a report from Challenger, Gray, and Christmas.

"Very precarious times for the small businesses that produce 40% of the jobs in America," Booth said.

Booth has previously argued that the economy is already in a recession due to weakness in the labor market. According to one unemployment indicator, the job market slipped into recession in October of last year, she said, anticipating more layoffs to hit the economy in the coming months.