Financial conditions of businesses The business sector is in good financial shape - a dramatic turnaround from the situation in 2001. Firms have reduced leverage and restructured their liabilities, responding in part to investors’ concerns arising from some high-profile unanticipated meltdowns in the early part of this decade. In addition, firms have significantly cut costs through dramatic gains in productivity, which has boosted profits.
In my view, even with a rise in interest rates and some moderation in profit growth, the business sector should remain financially strong and continue to expand. The improvement in corporate balance sheets in the past few years has been substantial. Firms have taken advantage of low long-term interest rates to refinance high-cost debt.