September 13, 2012
In an FCIB members-only teleconference focusing on the global economic outlook this week, FCIA Vice President/International Economist Byron Shoulton painted a picture in which virtually all corners of the globe are being affected negatively, to varying degrees, by the ongoing euro-zone crisis.
Shoulton noted that recent agreements coming out of the EU designed to bolster debt-hobbled economies represent "the strongest act to date to save the euro," describing them as "long overdue." But, as the situation continues to play out with the potential for Greece leaving the euro, and Italy or Spain possibly needing their own bailouts, export-dependent economies are taking a hit.
Shoulton noted that the drop in demand in the EU has affected the economic recovery of nations like the United States and led to growth targets being missed in emerging economies of Asia, notably South Korea, Thailand and Singapore. What's worse, in places like South Korea, the drop in Europe for demand of its products came during a domestic cool-off period, providing a double whammy. Granted, the inability of China, also affected negatively by a drop in product demand from the EU, to quickly ramp up its economy again after purposely slowing growth to stave off inflation isn't helping either.
"This region will remain a major driver of the global economy," Shoulton said of Asia. "But, over the medium term, real GDP expectations will continue their downward shift."
The crisis is affecting Latin and South American nations in another way, as well. Shoulton noted that European-based banks were known to fuel trade financing, with estimates of 33% and 40% of all trade financing for the region emanating from EU-based banks, especially in France and Spain. That could provide a drag on growth potential for emerging Latin trade markets.
"The banks are obviously pulling back," he said. "They are having problems with their own liquidity amid the need to slim the balance sheets."
Granted, Shoulton said there is more reason for optimism in Latin American nations than in the United States, EU and corruption-stricken trading nations in Africa and eastern Europe (primarily Russia). With richness in natural resources, increasing demand for consumer products and status as a key agricultural-product provider, it is "decidedly more upbeat:"
"People are taking a fresh look at Latin America, and it's making it more attractive for foreign investment and trade."
- Brian Shappell, CBA, NACM staff writer
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Opponents to the Visa/MasterCard interchange settlement gained a powerful ally this week as the National Retail Federation (NRF), the world's largest retail association, joined the fight. NRF's board of directors announced Tuesday that it had authorized the group to go to court in an attempt to block the proposed $7.25 billion settlement of a federal antitrust lawsuit over Visa and MasterCard credit card swipe fees.
NRF's complaints mirror those of existing opponents to the settlement like the National Association of Convenience Stores (NACS), the National Grocers Association (NGA), and mega-retailers Walmart, Target and Lowe's. "The National Retail Federation categorically opposes the proposed settlement," said NRF President and CEO Matthew Shay. "It does nothing to curb the anticompetitive behavior of Visa and MasterCard, and instead ensures that swipe fees paid by retailers and their customers will continue to rise while barring any future legal challenges. The proposal is a lose-lose-lose for merchants, consumers and competition."
"NRF will take any and all steps necessary to oppose the settlement as it is currently proposed and will work toward real reform of the swipe fee system," he added.
Though NRF is not officially a party to the lawsuit, the group is exploring what legal options are available for them to reach a solution that is "equitable to the broad merchant community," they said. U.S. District Court Judge John Gleeson has not yet fully outlined how outside groups will be allowed to intervene in the case, or if the case itself even qualifies as a class action suit.
Interchange, or swipe, fees are hidden charges banks collect each time a credit card is used to make a purchase. According to NRF, combined credit and debit card swipe fees tripled over the last decade to about $50 billion a year. Debit swipe fees were capped by the Federal Reserve in 2011, but credit card interchange rates still end up costing merchants 2% per transaction on average, amounting to about $30 billion a year for the credit card providers.
While the proposed settlement would allow merchants to pass on these interchange fees to their buyers via surcharge, it lacks a mechanism by which sellers can negotiate for lower interchange rates and does nothing to block future increases. "A key question for the judge is whether this settlement is fair to the nation's retailers," said Shay. "From what we have heard, it unequivocally is not."
Other provisions of the settlement deemed unacceptable by NRF are the $7.25 billion payment from Visa and MasterCard, given to merchants via temporary rate decreases as well as lump payments, which NRF described as "pennies on the dollar," and another measure barring all merchants—including those that do not yet exist—from ever suing Visa and MasterCard over interchange fees ever again.
- Jacob Barron, CICP, NACM staff writer
Stay tuned to NACM's eNews and NACM's blog for updates on the settlement. To learn more about how the settlement could affect B2B sellers, refer to the article "Swing and a Miss" in the upcoming September/October 2012 issue of Business Credit.
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Rarely has a warning from a ratings agency ever been so thinly veiled as Tuesday's chiding from Moody's Investors Service.
In its "Update of the Outlook for the U.S. Government Debt Rating," Moody's noted the United States' coveted "Aaa" sovereign credit rating, now in a negative outlook category, might take a hit and see a downgrade if lawmakers continue their failings to work together on budget and debt issues.
"Budget negotiations during the 2013 Congressional legislative session will likely determine the direction of the U.S. government's "Aaa" rating and negative outlook," said the Moody's report. "If those negotiations lead to specific policies that produce a stabilization and, then, downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed, and the outlook returned to stable. If those negotiations fail to produce such policies, however, Moody's would expect to lower the rating, probably to 'Aa1.'"
Moody's added the U.S. is unlikely to keep the "Aaa" rating if it remains in negative outlook over an extended period.
Economists, including FCIA Economist Byron Shoulton during this week's FCIB teleconference addressed in eNews' top story, have lined up to note just how important it is for U.S. politicians to start embracing compromise over partisan behavior, rhetoric and gamesmanship. The credit rating, not to mention a portion of the economic recovery itself, may depend on it.
Standard & Poor's already lowered the U.S. credit rating in the fall of 2011 with similar rationale. Though the move was met with hostility, mainly among Capitol Hill lawmakers, it appears the sentiment is growing and starting to significantly impact the view of market watchers, business owners and consumers alike. Whomever wins the 2012 U.S. presidential election might be well served to extend the olive branch to the other side of the aisle, and quickly, if analysts are correct in their assertion and Moody's is earnest in its thinly-veiled threat.
- Brian Shappell, CBA, NACM staff writer
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The United States exported $183.3 billion worth of goods and services in July, according to the latest numbers released by the U.S. Commerce Department. While the figure was down slightly from June's all-time record high of $185.2 billion, July's total still managed to impress, and represented the sixth consecutive month in which total exports topped $180 billion.
"Exports are a bright spot in our economic recovery, and it is critical that we encourage more American companies to compete in international markets," said Export-Import (Ex-Im) Bank Chairman and President Fred Hochberg. "I am pleased that U.S. exports remain high, and Ex-Im Bank will continue to help create and sustain American jobs through our export financing products."
Countries showing the largest annualized increases in purchases of U.S. goods, compared to 2009, include Panama (see story below), Turkey, Chile, Argentina, Hong Kong, Russia, Peru, the United Arab Emirates, Ecuador and Brazil.
Over the last 12 months, exports of goods and services totaled $2.17 trillion, which is 37.5% above the level of exports in 2009. "U.S. exports in July posted one of the highest levels on record, despite challenging global economic conditions. While there's still more work to do, we remain on track toward exceeding last year's export total of $2.1 trillion," said Acting U.S. Commerce Secretary Rebecca Blank. "The significant increase in exports since 2009 has helped America create 4.6 million private sector jobs over the past 30 months, and, in 2011, jobs supported by exports increased by 1.2 million since 2009."
The June to July decrease in exports was driven primarily by the goods sector, as exports of services were virtually unchanged. Specifically, reduced exports of industrial supplies and materials, automotive vehicles, parts and engines, other goods and consumer goods all contributed to the minor decline. Increases occurred in feeds, foods and beverages and in capital goods.
- Jacob Barron, CICP, NACM staff writer
For more information on how to grow your company through exports, visit FCIB's website.
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Panama's commitment to massively expanding its well-known and busy canal as well as its continued work to break down intergovernmental trade barriers is positioning the small Latin American nation as increasingly prominent.
Within the Commerce Department's statistics on export growth (see story above), one particular statistic jumped out: that, among major export markets, no other nation has seen a larger rise in the purchase of U.S. goods in recent years. The 36.3% increase since 2009 significantly bested the next-fastest riser, the well-discussed emerging economy of Turkey (28.6%). This has been accomplished before an already approved U.S.-Panamanian free trade agreement (FTA) has gone into effect—the date for which has yet to be released, but is expected no later than early 2013. Canada, too, has been working this month to update the Panama-Canadian FTA of 2009 to address areas not included in their first foray into breaking down trade barriers.
The expansion of what had become an antiquated Panama Canal pass-through will allow much larger cargo ships, among other vessels, to travel through the canal, opening up much faster and more direct shipping options to and from many ports in North America. Cheaper shipping costs will be the main benefit to neighboring exporters due to fuel savings for the biggest ships, less need for larger ships to stay in ports as long to get a full load and increased competition largely absent from the market at present. It all makes Panama a growing player and has caused ratings agencies like Moody's Investors Service to take note in the last year and raise its sovereign credit rating.
"Panama is a rather remarkable place of opportunity these days," said Hans Belcsák, one of FCIB's Global Economic Advisors, in an article about the nation's economic potential in the upcoming September/October issue of Business Credit. "The economy is going gangbusters." Belcsák adds the canal project is part of other ambitious investments that have been well received by trade partners: a subway system for Panama City, upgrades of major highways that link the capital to provincial cities, the expansion of the capital's international airport and a water and sanitation project designed to clean up Panama City Bay.
Key to watch in the coming months and years will be something else that has already ended up on at least one credit ratings agency's radar: whether the government there can manage growth responsibly and avoid creating troubling fiscal imbalances for the medium and long term. It's something that not-too-distant neighbor Brazil, despite its hot status of recent years, seemingly has again failed to master.
- Brian Shappell, CBA, NACM staff writer
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Total bankruptcy filings in the U.S. for August increased 7% compared to July. According to data provided by Epiq Systems, Inc. and the American Bankruptcy Institute (ABI), there were 104,336 filings in August, compared to 97,104 the month before, but the August 2012 total still remains 14% below the 120,905 filings registered in August 2011.
Total commercial filings for last month were 4,919, which marked an 8% increase from the 4,542 filings in July, and commercial Chapter 11 filings similarly increased by 8%, with 648 filings in August and 600 in July. Nonetheless, totals remain historically low. Despite the increase between July and August this year, the 4,919 commercial filings represent a 24% decrease from the 6,434 cases filed in August of last year. The August commercial Chapter 11 total was also lower than last year, representing a 9% decline from August 2011's total of 710.
"Financially distressed consumers and businesses will continue to turn to bankruptcy for relief," said ABI Executive Director Samuel Gerdano. "While the August totals rose slightly over last month, we remain on course for the lowest total new bankruptcies since before the financial crisis in 2008."
The average nationwide per capital bankruptcy-filing rate of 4.04 total filing per 1,000 people for the first eight calendar months of 2012 remained unchanged from the first seven months of the year. Average total filings per day in August 2012 were 3,366, a full 14% lower than the 3,900 total daily filings in August 2011.
Nevada was unseated as the nation's bankruptcy leader, being narrowly edged out by Tennessee which had a per capita filing rate of 7.03 in August. Nevada remained in second place with 6.97, followed by Georgia (6.58), Utah (6.07) and Alabama (5.69).
- Jacob Barron, CICP, NACM staff writer
Manual of Credit and Commercial Laws, 2012 Edition—New Format, Special Price!
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Many sections within the chapters have also been reworked, including those covering cellphone-based collection efforts, FTC rulemaking in terms of decedent estates and data security/breach initiatives at the federal government level.
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