US bankruptcy filings hit lowest level since 1986 due to support

US bankruptcy filings for 2020 hit their lowest level since 1986 as a flood of government support programmes offset at least temporarily the full brunt of the coronavirus pandemic and a related recession, Epiq AACER reported.

The firm’s compilation of bankruptcy cases showed the Chapter 11 filings used to reorganise larger businesses still jumped 29% in 2020 to 7,128, compared to 5,158 in 2019, a tally that included major retailers like J.C. Penney driven under by the biggest economic downturn in a century.

But overall filings, including all personal and other business bankruptcies, for the year were 529,068, compared to nearly 800,000 annually in recent years, and triple that in 2010 at the end of the last recession.

The low level of bankruptcies has been one of the more perplexing dynamics of a pandemic era that has seen millions of jobs destroyed, record numbers of people collecting unemployment insurance, and small businesses forced to close to combat the spread of the coronavirus.

Government unemployment insurance, business loans and other programs ended up replacing much of that lost income, pushing savings to record levels and keeping households and businesses afloat - at least for now.

A further $900 billion recently approved by Congress may continue to push a full reckoning down the road.

But Epiq AACER Senior Vice President Chris Kruse said in a press release he expects household and other non-commercial filings “to grow substantially in the second half of 2021,” as government programs end and debts from the last few months come due.

Though many households used government stimulus or increased unemployment benefits to pay down debts, for example, others are wracking up obligation by delaying rent and mortgage payments.

US factory activity accelerated to its highest level in nearly 2-1/2 years in December as the coronavirus pandemic continues to pull demand away from services towards goods, though spiraling new infections are causing bottlenecks in supply chains.

The strength in manufacturing reported by the Institute for Supply Management (ISM) on Tuesday likely helped to soften the blow on the economy in the fourth quarter from the relentless spread of COVID-19 and government delays in approving another rescue package to help businesses and the unemployed.

The ISM said the virus was “limiting manufacturing growth potential” because of absenteeism and short-term shutdowns to sanitize facilities at factories and their suppliers.

“US manufacturing should fare reasonably well this winter as businesses need to restock inventories and the shift in consumer spending away from services to goods helps manufacturers,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.

The ISM’s index of national factory activity increased to a reading of 60.7 last month. That was the highest level since August 2018 and followed a reading of 57.5 in November. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the US economy. Economists polled by Reuters had forecast the index would slip to 56.6 in December.

The ISM survey mirrored manufacturing gains in the eurozone and China.

Some of the surprise rebound in the ISM index, however, was due to an increase in the survey’s measure of supplier deliveries to a reading of 67.6 last month from 61.7 in November. A lengthening in suppliers’ delivery times is normally associated with a strong economy and increased customer demand, which would be a positive contribution.

But in this case slower supplier deliveries indicate supply shortages related to the pandemic.

Nevertheless, demand for manufactured goods has been strong as the resurgence in new COVID-19 cases has led to fresh business restrictions across the United States, largely impacting the vast services sector.

A large section of the population continues to work and take classes at home, fueling a scramble for electronics, home improvement products and other goods like exercise equipment.

Sixteen out of 18 manufacturing industries reported growth in December. Computer and electronic products manufacturers said they continued to have “tailwinds from the COVID-19 pandemic research support for vaccines and treatments.”

Makers of miscellaneous products reported that sales had exceeded pre-COVID-19 levels. Electrical equipment, appliances and components producers said business was stronger than expected, “with higher demand for many products.”

Despite strong demand, manufacturing output is still about 3.8% below its pre-pandemic level, according to the Federal Reserve. That could persist for a while as the new wave of infections causes disruptions to labor and the supply chain.