Why would an A+++++ economy have so many bankruptcies?

An economy can post “A+++++” headline numbers like strong GDP growth and low unemployment while still seeing many bankruptcies because averages hide severe stress in specific sectors, smaller firms, and indebted households.​

Hidden weakness beneath averages

Headline data are dominated by large, highly productive firms (especially tech and other winners) that boost GDP and stock indexes, while many small and mid‑sized businesses face higher costs, weaker demand, and tight credit. This creates a gap where the macro indicators look strong but a large share of firms and households are operating on thin margins and are vulnerable to shocks.​

Interest rates and debt overhang

Many companies and households borrowed heavily when interest rates were near zero, often at variable or short‑term rates. When rates rose sharply from 2023 onward, debt service costs jumped, so businesses that were viable under cheap money could no longer cover interest and were pushed into default or restructuring.​

Inflation, real incomes, and margins

Even after inflation slows, the cumulative jump in prices for rent, food, utilities, and inputs leaves households and firms permanently dealing with higher cost levels. Lower‑income families and small local businesses are hit hardest because they cannot pass through higher costs as easily, leading to rising delinquencies and bankruptcies even while aggregate consumption and employment remain solid.​

Sectoral and structural shocks

Certain sectors—commercial real estate, small retail, restaurants, some health care and construction‑linked firms—face specific pressures such as high vacancies, changing consumer behavior, or policy shifts, driving concentrated waves of insolvencies. Corporate insolvencies also tend to lag the business cycle, so stress built up during earlier disruptions (pandemic, policy changes) can show up as a bankruptcy spike even after top‑line growth has recovered.​

Policy cliffs and credit conditions

Temporary supports like pandemic relief, forbearance, or enhanced benefits delayed many failures; once these expired, weak borrowers suddenly had to meet full obligations again. At the same time, lenders have tightened standards and raised risk premiums, so distressed firms find it much harder to roll over or refinance debt, making bankruptcy more likely despite a “strong” aggregate economy.​