October 7, 2010
Contrary to the belief of many economists, the U.S. economy is headed for a second dip into recession according to the participants of NACM's September Monthly Survey. When asked if they believed the economy will double dip, 53.5% of respondents answered "yes." Only 27.1% of respondents said "no" while the remaining 19.4% weren't sure.
Opinions differed on what exactly would plunge the U.S. back into a recession, with high unemployment and a weak housing market being the most likely culprits. "If we don't figure out how to get small business back in the game, unemployment will never get under control, and until this happens, nothing else will fix anything," said one respondent. "Unemployed people don't buy homes or services other than the bare minimums, and this will not turn anything around."
"The housing sector is still not recovering and will push us into another recession," said another participant.
Some respondents suggested that the double dip had already begun, and that things will get worse before they get better. "I would say we are already in the basic beginnings and probably will see a triple dip before it is all over," said one respondent. "Most economic reports I have seen...feel there will not be a very strong recovery until 2018 when it will start to show some trickle of hope."
Participants who didn't think the U.S. economy would double dip weren't exactly optimistic either. Only one respondent commented that they were "already seeing improvements," but most predicted that the country was facing long-term economic stagnation, or suggested that the original recession was still gripping the market. "Despite indicators that measure the state of the economy, I don't feel as if we've pulled out of the recession in the first place," said one respondent. "Tapering off does not portend a double dip, but a Japanese-style five to 10 years of flat domestic growth is ahead," said another, referring to what economists call Japan's "lost decade," which occurred between 1991 and 2000 following the collapse of an asset price bubble.
"I think we are in an extremely slow recovery," said one respondent. "The housing market will not come back for 10 years. The unemployment and lack of backing from the government for private businesses will hinder recovery. I don't see a double-dip recession, I see a difficult, slow recovery."
Moving forward, it seemed that most credit professionals didn't expect much economic help from the government, nor did they see much in the way of growth for the foreseeable future. "I simply don't see anything being done which will prevent this," said one respondent. "I'm preparing for the worst."
NACM's October Survey is now live on NACM's website, and asks about your company's recovery rate in bankruptcies. The results will be used to help NACM in their fight for unsecured creditors' rights on Capitol Hill. Click here to participate today! Each respondent will receive .1 continuing education units (CEUs) and is automatically entered to win a FREE teleconference registration.
Jacob Barron, NACM staff writer
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The U.S. Department of Justice (DOJ) sued Visa, MasterCard and American Express this week for violating antitrust law. In the suit, filed in the Eastern District of New York, the DOJ took specific aim at rules imposed on merchants by the nation's three big credit card issuers to prevent them from providing discounts to card users.
At a press conference, Attorney General Eric Holder chided the country's three largest credit card networks for collecting billions in swipe fees while simultaneously restricting the rights of merchants responsible for paying those fees. "Every time a consumer uses one of their credit cards to buy something from a merchant, that merchant pays a fee...In 2009 alone, the three credit card companies and their affiliate banks collected more than $35 billion in these fees," he said. "Visa, MasterCard and American Express don't just impose fees, however—they also prevent merchants from offering consumers any cost saving options such as discounts or rewards for using less expensive forms of payment. The companies put merchants and consumers in a no-win situation: accept our card, pay our fees and don't even think about trying to get a discount."
The DOJ argued that these restrictions prevent price competition among credit card networks and increase business costs, which translates into higher prices for consumers.
Even as the lawsuit was being filed, Holder noted that the DOJ had already reached a tentative settlement with Visa and MasterCard. If approved, the agreement would allow companies to offer their customers more payment options and cost-saving incentives. For example, a customer using a credit card that's cheaper for a merchant to accept could receive rebates and price reductions. Merchants would also be allowed to inform their customers which cards will most reduce their business costs, and thereby which cards will net the customer the greatest discount.
American Express was not included in the proposed settlement and received an added dose of criticism from Holder. "American Express maintains the industry's most restrictive merchant rules. American Express also has the highest fees of any credit card company," he said. "American Express' rules prohibit any of the millions of merchants that accept American Express from taking advantage of the discounts and rebates Visa and MasterCard now can allow as a result of our settlement...We cannot allow this to stand, and we will not."
Jacob Barron, NACM staff writer
The sun sunk below the horizon leaving behind streaks of red and orange...
It's time once again to submit your anecdotal credit stories for NACM's Credit Words Contest. Earn cash and Roadmap points if you're a winner and Roadmap points if we publish your story. Tell us about the biggest success, proudest moment or most humorous situation experienced during your career. It's not a perfect world either. You can tell us about an unexpected turn in what should've been an easy task, or even a story of failure that will serve to help other credit professionals in the future. The possibilities are endless!
Submission deadline is November 1, 2010. Read the contest rules and get additional details in the September/October issue of Business Credit, or by clicking here.
As painful and costly memories of the longest, deepest recession in more than a half-century start to fade amid economic stability and hope for mild growth, the number of corporate bankruptcies has started to wane. But instead of being caused by the sheer volume of filings amid financial losses and changes in the legal code, bankruptcy-related headaches now appear to be tied more to the approaches taken by some bankruptcy attorneys and various technicalities in the cases.
A panel of judges at the recent American Bankruptcy Institute's (ABI) "Views from the Bench" conference explained that heated inter-creditor disputes have become commonplace, if not dominant plot lines, in bankruptcy courtrooms. Panelists, including Hon. Robert Drain and Hon. James Peck, both of the U.S. Bankruptcy Court's Southern District of New York, noted complex capital structures—exotic debt instruments, swap and derivative arrangements, etc.—have led to multiple priority-level-liens, which often complicate proceedings. Unfortunately, "much of such secured indebtedness is often housed in CDO [collaterilized debt obligation] structures with opaque and not easily accessible governance terms that serve to exacerbate governance and intercreditor controversies."
"The intensity of sophistication of litigation is still on the rise," said Peck. "Virtually all cases I've had of any significant size have involved creditor issues."
Drain intimated part of the issues stem from the inadequacies left in provisions written for companies in years past, without the assistance of bankruptcy attorneys that are now coming home to roost. As such, skilled bankruptcy attorneys that companies now face in court are now "poking holes" in poorly constructed provisions. It's all part of what appears to be a more attack-based style on the part of many bankruptcy attorneys.
"There are a lot of players in bankruptcy proceedings who are incredibly aggressive now and not willing to play by the unspoken rules. They battle over every issue," said Drain. He added the strategy appears to be one of attacking, especially on the part of those representing second-, third- or fourth-lien holders, to get even more than first-lien holders.
Still, it does not appear the approach will inspire a new normal in the bankruptcy world. Peck argued some of these issues simply need to take time to work through the structural "car wash," so to speak, before things settle down again.
More coverage from ABI's "Views from the Bench" will be available in next week's eNews. Additional coverage can also be accessed before the Oct. 14 edition at our blog, NACM Credit Real-Time.
Brian Shappell, NACM staff writer
Industry Credit Groups
Credit groups are an effective management tool. They permit credit professionals of different companies servicing the same customer, regardless of industry or trade, to compare information on collection history and provide a forum for the exchange of data as to the most recent payment practices. The purpose of exchanging information is to help group members segregate fiction from fact, so competent and realistic credit decisions about a customer can be made.
Managed and operated by NACM Affiliates nationwide, NACM-Canada and FCIB internationally, credit groups:
- Provide unparalleled networking opportunities
- Assist in the exchange of credit information on common customers
- Facilitate the receipt and analysis of information to make unilateral credit decisions
- Provide a forum to discuss the latest developments on credit department procedures,
equipment and other credit management functions
- Support the discussion of account information and delinquent account reports
- Adhere to federal antitrust guidelines
Contact your local NACM Affiliate to learn more about NACM credit groups and to find the group for your industry.
September reports illustrating some newfound stabilization in the long-hurting commercial real estate sector have emerged as perhaps the most positive news the industry has seen since before the economic boom went bust a few years ago.
The Commercial Real Estate/Multifamily Finance Quarterly DataBook, produced by the Mortgage Bankers Association (MBA), found several reasons for optimism in an industry that has been ravaged by bad news in recent years. Among other statistics, the study found net absorption for property markets turned positive for every property type during the second quarter and long-escalating vacancy rates have stabilized or even fallen in much of the nation:
"Commercial real estate fundamentals are showing signs of a firmer stabilization as businesses eased job cuts and started to hire, consumers began to re-open their pocketbooks and households increasingly looked to rent rather than own their homes."
Such stabilization and potential for growth appear to be closely mirroring the general economy, said MBA analysts. In essence, as long as national economic growth avoids a feared double-dip recession, commercial real estate should remain stable or improve through year's end and into 2011.
The quarterly report came on the heels of new employment statistics unveiled by the Labor Department, which noted 25 states experienced construction job increases in August. The largest monthly employment increase came from Illinois, while the top year-to-year upticks were seen in New Hampshire and Oklahoma.
However, Associated General Contractors of America (GCA) noted many states continue to struggle, notably Nevada as well as, more recently, Minnesota and New Mexico. Ken Simonson, AGC chief economist, argued the battered industry still needs significantly more federal assistance beyond that of an economy showing tepid signs of turning around to sustainable positive growth.
"National construction employment has been flat since March, and more areas have seen an upturn in employment, while job losses in the remaining states are less severe than previously," said Simonson. "But the gains may be fleeting unless Congress and the [Obama] administration enact long-term infrastructure funding bills before the current stimulus funds are exhausted."
Brian Shappell, NACM staff writer
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To learn more about CFDD, click here.
Now, perhaps more than ever, credit professionals need as many tricks as they can fit up their sleeve.
Whereas in happier economic times, a credit manager may have been able to size up potential customer creditworthiness without much analysis, times have changed, and as many businesses turn to their trade creditors to help them through their financial crises, credit professionals must be able to use every tool at their disposal to protect their company from bad customers that might look good at first glance.
"At this time, as much as ever in history, we need to be able to utilize every tool that we've got," said Toni Drake, CCE of TRM Financial Services, Inc. "I think financial statements are a tool that we've always had, but the average credit manager probably hasn't gotten the chance to work with them on a regular basis."
Credit professionals and analysts who haven't had to rely on financial statements in the past, but do now, need to know as much as they can to get to the bottom of a potential customer's finances, and all of them should attend NACM's upcoming teleconference, "Taking the Fear Out of Financial Statements," on October 13 at 3:00pm EST.
This 90-minute "Added Advantage" teleconference presented by Drake will run through the basics of a financial statement and teach credit managers how to extract information that they need in order to make a sound decision. "I think this will show them how to separate the minutiae, how to pick out the hot spots and how to use it to their advantage," she said.
To learn more about this teleconference, or to register, click here.
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Recent changes to mechanic's lien statutes in Alaska and Mississippi should be seen as significant victories for the trades. In Alaska, contractors will enjoy more time to file, while in Mississippi they'll be getting some rights that every other state already had on the books.
Under Alaska's House Bill 253, the time period for contractors, materials suppliers and/or service providers to file mechanic's liens was extended from 90 days to 120 days. The change became effective in September. While a "subtle change," it's certainly a positive for the industry, said Greg Powelson, director of NACM's Mechanic's Lien and Bond Services.
"It's definitely a change that will benefit suppliers as well as laborers by giving them extra time to work things out before engaging the legal system," said Powelson.
The change is in line with several other states' moves to extend the timetable on filing. Still, Powelson isn't ready to declare it a trend, though keeping disputes out of the courts would be more efficient for nearly all parties involved in a project. He warned not to expect extensions to go national as "there really is no rhyme or reason" to explain the states' decisions to increase or decrease the period: "It can really go in either direction."
Meanwhile, in a change largely driven by the lobbying efforts of the trades, Mississippi House Bill 2800 gives rental equipment providers mechanic's lien rights for the first time. As such, Mississippi, regarded by some as one of the most limiting states on lien rights, became the last state in the nation to do so.
"This finishes off the rental equipment issues there," said Powelson. "In my opinion, it was ridiculous and unnecessary that they were just left out. It surprises me it took so much time and effort to make this right in Mississippi. This tidies things up and is a real win for trades." Speaking to advocacy and awareness by the trades, he added that the end result is proof that "hard work and effort can make things right."
The above statutes as well as upcoming mechanic's lien changes in California, Missouri and Oregon, among others, are available to members through the MLBS Lien Navigator portal at www.nacm.org.
Brian Shappell, NACM staff writer
MLBS Offers Complete Lien and Bond Services and More
NACM's Mechanic's Lien and Bond Services (MLBS) brings best-in-class service options to today's construction credit professional.
MLBS' Lien Navigator is a web-based service that provides up-to-date information for all 50 states and Canada, including notice, lien, payment bond and suit timelines, procedures and other relevant information in a state-by-state/province-by-province format.
MLBS also offers two preliminary notice to owner (NTO) services, deadline tracking, a lien and bond filing program, and a suit against bond and foreclosure service. Both NTO services include, at no additional charge, a Next Action Notification Email. These reminders are sent automatically to ensure that your lien and suit deadlines are met during each step of the lien process.
For more information on NACM's MLBS, click here.
"If you are a big fan of volatility, you will like this month's Credit Managers' Index (CMI)," said Chris Kuehl, Ph.D., NACM's economic advisor. "The positive trends that we saw in last month's manufacturing data were replaced by some negative trends, while the service sector that looked so stressed in August seemed to come back to life in September. If just the CMI numbers were considered, one could conclude there really wasn't much going on and that everything was pretty stable. After all, the combined CMI reading went from 53.3 to 53.8. The real story is that this truly dramatic activity reversed the pattern of the previous month."
This pattern reflected the general confusion in the greater economy. Employment data managed to improve week over week at the same time that durable goods orders declined. Then, within the goods category itself, the gains in machinery manufacturing were offset by big drops in the aerospace sector. Some of this volatility can be attributed to the height of election season and Congress being in high gear—at least as far as rhetoric is concerned—and these various moves and countermoves influence business decision making from one week to another; meaning industries are delaying usual decisions as they try to determine if any of these changes will affect them.
Economists are starting to describe this recovery as a "growth recession," a term that could only be hatched by the dismal sciences, Kuehl said. It refers to the fact that the recession essentially ended from a technical point of view in the summer of 2009. That was the conclusion of the National Bureau of Economic Research (NBER) with its examination of a host of factors alongside the traditional measures of GDP growth or decline. In fact, the NBER assessment of the economy held that the recession really began in 2007. What makes these assessments by the semi-official arbiter of all things recessionary interesting is they correspond with observations one could make by looking at the CMI data of the past few years.
By looking at the year-over-year numbers, it is apparent solid growth was taking place by September 2009 and this growth carried forward through the rest of the year. Go back a few more months and look at the CMI numbers from the summer, and it is apparent that a turnaround was underway by May and June 2009—exactly the moment NBER determined the recession was coming to an end.
More interesting yet is the CMI data from 2007 when the rest of the country was still enjoying the boom. There were already some signs of trouble within the data: more disputes were appearing, there was more dollar exposure and there were more signals that sales were eroding. There was even a harbinger of things to come, as far as credit was concerned, as there was a reduction in both credit applications and applications granted. The numbers in 2007 were still solid and there was still growth, but troubles were on the horizon.
View the full commentary and related table and graphs for this month and previous CMI reports here.
To view past eNews issues or to visit the NACM Archives, click here.