The Labor Market And The November Bankruptcy Risk Reading

As November came to an end, the national unemployment rate reached 6.7% for the first time since September of 1993.  Further, as the number of unemployed Americans rose to over 10.3 million, the number of underemployed also rose to over 7.3 million individuals – the largest number ever reported for this figure.  In total the December labor market has nearly 17.7 million Americans either unemployed or underemployed heading into the holiday season.

If headlines of pending and announced layoffs haven’t made it clear, the labor market is center-stage as the de facto issue most likely to lead to continued economic deterioration.  

The potential for continued credit losses has been demonstrated by the rise of consumer bankruptcy filings throughout the year.  In November, consumer bankruptcy filings (Chapter-7 and Chapter-13) totaled 91,722 with Chapter-7 filings representing 67%, and Chapter-13 making up the remaining 33%.  

The Administrative Office of the U.S. Courts announced Monday that individual bankruptcy filings for the 2008 Fiscal Year totaled 1,004,342, the highest figures since the passage of the “Bankruptcy Abuse Prevention and Consumer Protection Act” (BAPCPA). The figures marked a 30% increase over bankruptcy filings in Fiscal 2007.

The rise in year-over-year filings also resulted in an increase in November’s Employment-Related Bankruptcy Risk reading of nearly 80%, representing over $22.1 billion in outstanding consumer credit at potential risk of non-contractual default. The Employment-Related Bankruptcy Risk reading was created by Kaulkin Ginsberg to gauge the overall consumer credit at risk for default due to consumer bankruptcy.         

As we move into the first quarter of 2009, for credit issuers and accounts receivable management (ARM) service providers, employment and the overall health of the labor market will continue to hold its position as the factor most prominent in the recovery of consumer debts.