A Quarterly Report Tracking Late Payments and Business Failures
Dun & Bradstreet’s quarterly report tracks payment delinquencies (91+ days past due) and business failures across nine key US industries: Manufacturing, Retail, Transportation, Real Estate, Business Services, Personal Services, Construction, Automotive, and Financial Services. This provides a snapshot of two metrics of overall financial health to facilitate better understanding of benchmark trends, leading to better credit management.
Overall Failures and Delinquencies
Both business failures and delinquencies seem to have taken a turn for the worse over the current reporting period. This could be driven partially by four steady hikes in the Federal Reserve’s policy rate in 2018. With rates holding steady in the aftermath of the Great Recession, many businesses had started and thrived in the low interest rate environment. Those businesses may now be struggling to meet their financial obligations or to keep their doors open despite the recent cut in the rates.
Another growing cause of concern is the ongoing trade war between the US and China. The newly implemented tariffs on Chinese imports have so far resulted in modest (and expected) price increases for some consumer goods. Although some goods have received a temporary reprieve until December, the uncertainty generated by the situation will cause both businesses and consumers to tread with caution in the near term.
Failures and Delinquencies by Industry: Q2 2019 Trends
The profile of changes in business failures and payment delinquencies have altered considerably this quarter as compared to the past few quarters. As is evident from the chart above, several major verticals have registered increases in business failures, with Construction heading the pack with about 21% increase in business failures. Automotive – which is the sector that registered the highest delinquency rate this quarter as well – follows suit with a 13.5% increase in failures compared to Q2 2018.
Although businesses in the Transportation segment seem to be keeping their heads above water for now, they are still straining to meet their financial obligations, with the second-highest delinquency rate of 5.2% while the US average stands at about 3%. The US economy continues to expand on the whole, generating healthy consumer demand to support growth in Transportation. However, uncertainty on the energy price front and softness in key freight-generating sectors like Manufacturing and Construction are possibly the strongest headwinds currently faced by this sector.
Methodology
Delinquent payment data is compiled from D&B’s global trade database to calculate delinquency rates; Dun & Bradstreet processes more than 1.5 billion trade experiences every year. Business failure data comprises bankruptcy filings in the US, as well as businesses that closed their doors with severe outstanding debt relative to their size.
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