This confluence of events remains something of a mystery. The U.S. is a consumer-driven economy, but consumer confidence remains at recessionary levels and wages have hardly budged. Companies are hoarding cash. The Federal Reserve has continued to support the economy with unprecedented levels of bond-buying but with diminishing returns. And government continues to weigh on the economy.
There is one overlooked factor that can help explain the comparative buoyancy of the U.S. economy: the decline of financial failure.
Financial failure comes in many forms: the shuttering of banks, defaults on mortgages, credit-card charge-offs, corporate and personal bankruptcies, and mass lay-offs. Each is damaging as an event on its own. But, like rocks tossed into lakes, their impacts cause larger ripples. Because the American financial system piles debt upon debt, one small financial failure can lead to a larger number of financial failures. Because humans are, well, human, they tend to react to failures around them by becoming more financially conservative—even if their own livelihood isn’t in danger. Put another way, failure is pro—cylical—a company going bankrupt fires a worker, who defaults on a mortgage, which causes a sharp decline in value on a mortgage-backed security, which can help push a bank toward insolvency. And that’s part of the reason the recession of 2008-2009 was so deep and harsh. Failure begot failure.
But the forces work in the other direction. For the reasons cited above, success (or a mere decline in failure) can lead to further success (or further declines in financial failure.) And to a large degree, this was the story of 2013.
Fewer companies failed this year than in previous years. Corporate bankruptcies in the third quarter of 2013 (PDF), at 8,119, were down 12.2 percent from the third quarter of 2012. In fiscal year 2013, which ended in September, corporate filings were down 17 percent from the year before—and down 42 percent from fiscal 2009. Yes, companies continue to restructure, revamp, and rightsize, often in very public ways. Through the first 11 months, large companies publicly announced478,428 job cuts, according to Challenger, Gray & Christmas. But that’s down 2.5 percent from the first 11 months of 2012. Overall, there was generally a lot less firing in 2013 than in 2012. As a result, the weekly pace of first-time unemployment claims declined over the course of the year. In the second half of 2013, on a seasonally adjusted basis, about 330,000 Americans experienced the trauma and psychological blow of filing for unemployment benefits each week. In the second half of 2012, about 380,000 Americans did so.