Analysis: Advisory Firm Warns of Emerging Private Credit Risk in the United States

Consensus forecasts expect United States (US) unemployment to hold at 4.3%, with non-farm payrolls adding around 60 000 jobs when US labour market data are released later this week. If the data land near those expectations, the Federal Reserve (the US central bank, also known as the Fed) is likely to hold rates steady at its 18 March meeting. Recent analysis has pointed to a labour market that remains relatively firm, while inflation is still above the Fed’s preferred measure.

The note, however, warns of a negative surprise perhaps lurking in the US economy.

Should the unemployment rate rise materially above expectations or payroll growth disappoint significantly, that could signal emerging earnings pressure across corporate America. In that environment, attention would turn rapidly to the private credit market.

According to the firm, private credit in the United States has become particularly prominent in recent years as banks remained under heavy regulatory scrutiny and non-bank lenders sought new sources of yield. The sector now provides significant funding to leveraged mid-market companies, including meaningful exposure to software and technology-linked firms.

In isolation, this expansion is not necessarily problematic. However, the note outlines a scenario in which several pressures converge.

Software equities have already come under sustained artificial intelligence (AI) pressure. Uncertainty surrounding AI is raising questions about long-term profitability in parts of the technology sector. New tariff rules could unsettle the US economy. And in the most adverse geopolitical scenario, a prolonged Middle East conflict could amplify global risk aversion.

If, in that context, very poor labour data were to signal a broader earnings slowdown, leveraged firms could face difficulty meeting debt obligations. The concern would not simply be defaults, but liquidity strain in a market characterised by opaque leverage structures and less transparent pricing.

The note poses the issue plainly: “Is there a vulnerability in America created by private lenders, potentially underregulated, extending credit under opaque leveraging conditions to companies operating in industries where earnings visibility is deteriorating? And what are the consequences if that vulnerability coincides with an economic shock revealed through disappointing jobs data?”

The firm stresses that the warning is highly conditional. There are multiple “ifs” embedded in the scenario, and the base case remains one of stability. However, the firm concludes that the interaction between labour market weakness and private credit leverage warrants close monitoring.