Rapidly rising corporate debt: Are firms now vulnerable to an economic slowdown?
Thursday, June 1 2000
The buildup of debt in the late 1990s has raised concerns about the U.S. nonfinancial corporate sector's health and its vulnerability to economic downturns. An analysis of the sector suggests that while small firms are experiencing some weakness, corporations as a group are in good financial shape.
U.S. corporate debt has grown rapidly in recent years. Between 1995 and 1999, the outstanding debt of nonfinancial corporations rose a hefty 46 percent-a trend typified by last year's increase of 12 percent. Viewed as a share of GDP, such debt has now reached unprecedented heights (Chart 1).
This seemingly high level of debt has concerned some observers, who wonder whether it has made the nonfinancial corporate sector financially weak and vulnerable to economic downturns. Such concerns have gained credibility from the recent worsening of other gauges of corporate health, notably default rates and recovery rates on defaulted debt.
