The current year will see a 51-percent increase in U.S. business bankruptcies over 2006, according to a new forecast by Euler Hermes ACI. The provider of trade credit insurance has revised its outlook for 2007 to describe a continuing trend that was broken only by a "one-off" reduction in business failures last year, due to a change in U.S. bankruptcy laws. A slowdown in the U.S. economy, lower profits and reduced impact of the 2006 legislation will cause business bankruptcies to rebound in 2007, said Daniel C. North, chief economist of Euler Hermes ACI. "We anticipate a return to some 30,000 insolvencies this year," he said. The ailing housing market continues to act as a drag on the U.S. economy, with house prices falling for several months running. A sluggish housing market, combined with tighter monetary policies and higher gas prices, will likely cause continued slowing of the U.S. economy this year. At the same time, North noted the possible abatement of inflation concerns in the U.S. In May, the Federal Reserve found core inflation to be "somewhat elevated." Nevertheless, said North, at least one key measure of labor costs fell 1.3 percent in the first quarter of 2007, and the Fed could be content to let the slowing economy serve as a reliever of inflationary pressures. "Given the weakness in the economy," North said, "the Fed may only have to wait until the fall to shift its bias towards growth and start cutting [interest] rates."
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