NACM’s Credit Managers’ Index Again Fails to Build Positive Momentum in June

The June Credit Managers' Index (CMI) report from the National Association of Credit Management (NACM) fell back to 53.4, mirroring the slide found from February to March. The ongoing inconsistency makes the CMI, among other economic data, resemble a seesaw, according to NACM Economist Chris Kuehl, Ph.D.

"Every month, analysts await a new set of data releases poised to make some declarative statement regarding where the economy is heading and every month, the clear path proves to be elusive once again," said Kuehl. "There always seems to be something both optimists and pessimists can latch on to."

The month-to-month changes are not the only "tale of two directions," as Kuehl characterizes it. There are increasingly wide spreads between the favorable and unfavorable factors within both the manufacturing and service sectors. "On the one hand, there is some hope for better numbers in the future as the favorables look better than in a long while," Kuehl said. "However, the present is not so positive, as the unfavorables are worsening, which signals that many companies are not in the shape they would like to be and are falling behind in their obligations."

With the combined index sales category at its lowest point in more than a year and the unfavorable categories accounts placed for collection and dollar amount of customer deductions falling dramatically into contraction territory, there is reason to be concerned that the positive performance of mid-2014 won't be matched in short order.

"The year-over-year trend is not encouraging," Kuehl said. "There has been a distinct downward slide, and it is apparent that conditions were far better in mid-2014 than they are now. That was neither expected nor wanted at this stage of a recovery."



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Congress Abandons Export-Import Bank … For Now

Right up to the last minute, it seemed that the vote for re-authorization of the Export-Import (Ex-Im) Bank of the United States would have the support needed by federal lawmakers. In the end, Congress elected to head out of town for the Independence Day recess without passing legislation that would preserve the institution, meaning its doors are essentially shut unless it comes up again later in the month as part of another legislative effort.

The Ex-Im system is simple enough. A nation or company overseas wishes to purchase something from a U.S. company but lacks the upfront money to do so. The foreign borrower gets a loan from the Ex-Im Bank at very competitive rates to enable the purchases of these U.S.-made goods. The money is a loan, not a grant or gift. Historically, these have been routinely paid back in full and on time, as foreign buyers want to be able to access the program in the future. They generally play by the rules.

The opposition to the Ex-Im Bank comes from Republican conservatives who have equated the program with "corporate welfare." This is a decidedly strange attack given the way the Ex-Im Bank works—it has been taxpayer-neutral or generated a surplus in the vast majority of its years of existence. There are literally thousands of direct subsidies and specific trade preferences issued to various business sectors in the U.S that would more closely fit the definition of corporate welfare.

Much has been made of the fact that the biggest users of the Ex-Im Bank are companies like Boeing, Caterpillar and General Electric; but they are among 1,700 smaller operations that have taken part in and routinely benefitted from the system. Those three are also competing against companies receiving massive subsides from foreign governments, and the trio relies upon Ex-Im to help level the playing field somewhat.

The opposition is hard to understand and that has led many to theorize what underlying factors might really be behind the objections (re: pressure from big banks that see Ex-Im as a competitor, lawmakers with unrelated disputes with companies like Boeing and Caterpillar, etc.).


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Report of Slowing Pace of Home Price Gains Shouldn’t Scare Construction Industry

On the surface, the latest official statistics tracking home price gains don't appear too promising. But there are quite a few positives buried beneath the top-line statistics for construction-based companies.

Year-over-year price levels increased by 4.2% in April, falling just short of the 4.3% uptick registered in March's S&P(Standard & Poor's)/Case-Shiller U.S. National Home Price Index, according to S&P Dow Jones Indices. The 10-City and 20-City Composite performed slightly better at 4.6% and 4.9% growth, respectively. Still, these growth rates pale in comparison to those of two years ago which, to be fair, were rebounding from very low levels.

Raw statistics show the largest annual price gains in April to be in Denver (10.3%) and San Francisco (10%). The District of Columbia (1.1%) and Cleveland (1.3%) reported the worst gains. Seattle (2.3%) posted the best one-month change between April and March and was also among the five hottest gainers in the annual tracking.

After some winter disappointment, S&P Dow Jones Indices Managing Director David Blitzer returned to something resembling optimism in the April statistics released this week, and with some good reason. Although housing starts declined in May following April's surge, the level remained considerably higher than the two previous months, according to National Association of Home Builders (NAHB) statistics. Importantly, building permits levels, which often foretell activity in the coming months, soared in May. This is thought to be largely because of interest in more multifamily structures, as the owner-renter pendulum has swung heavily to the advantage of owners of late.

In addition, the inventory of new homes for sale has dropped or remained stagnant in each U.S. region except for the Northeast, according to Department of Commerce data. And though existing-home inventories have continually risen in 2015, the level of sales in this category is at its highest since 2010 for single-family homes and close to it for existing condominium sales.

All of that looks like there is some reason to be positive for those in or providing supplies and services to the construction industry. Granted, it's also well-known that few industries have been more volatile since last decade's downturn than construction.



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Wells Fargo: Argentina Gets Another Chance

Argentina is approaching a crossroads again amid the possibility of an important change in direction after the presidential elections scheduled for later this year. If the Peronist candidate, Daniel Scioli, wins the presidency, we should expect a very similar direction in terms of policy for the Argentine economy. This includes intervention in the economy by the administration; closer ties with China, Russia and Iran, and moving away from the U.S. sphere of influence. However, if Mauricio Macri should win, we expect more market-friendly economic policies and more orientation toward the U.S. sphere of influence.

However, the winner will have to make tough choices regarding the country's exchange rate and monetary and fiscal policies. Furthermore, we expect more of an opening regarding the international capital markets no matter who wins the presidency, as the country will need to access this market in the medium to long term. However, it is not clear how this issue is going to be resolved as neither the Peronists nor the opposition will have the resources available to settle with the holdouts.

What is clear is that, no matter who wins the election, the country's external sector, the major driver of strong economic growth during the early part of this century, will not be there to help the economic policy largesse that characterized the last 12 years of the Peronist administrations. Economic growth will remain limited and will have to be driven by productivity increases rather than policy.

- Wells Fargo Economics Group



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