February 28, 2013
The National Association of Credit Management's (NACM's) Credit Managers' Index (CMI) was exactly the same for February as it was in December—54.9. This is just slightly better than it was in January when the index fell to 54.6. For all intents and purposes, the readings suggest that the economy has stalled. The interesting movements are in the individual factors where there is actually some better news overall. The favorable factor index is up to just below where it was in November, at 59. This is a slight improvement from January, and the gains occurred in important factors.
Sales jumped, taking the reading back to last year's levels. "The strength of this indicator can't be overlooked, as this signals substantial activity despite all the concerns registered over the 'fiscal cliff,' the debt ceiling and the sequester" said NACM Economist Chris Kuehl, PhD. "However, the impact has been hard to figure out. On the one hand, it is pretty obvious that the lower GDP number from the fourth quarter was directly related to fiscal cliff concerns within the business community, but the latest revisions show no dip into recession as first thought." The data coming from the Purchasing Managers' Index shows similar variability, and other signs within the rest of the CMI's favorable factors point to continued confusion and caution, Kuehl noted.
The unfavorable factor index rose from 51.9 to 52.2. In general, there was either significant progress or stability in the factors. Of note, rejections of credit applications fell, but it is still higher than the majority of the readings in the last year. The trend seems to indicate that most of those seeking credit are qualified and most are getting the credit they apply for. "The overall impression is of a steady state, with a slight movement in a positive direction," said Kuehl. "What makes all of this interesting is that it is taking place against a backdrop of political drama that many believe will cause serious economic dislocation before all is said and done, and it seems to be the manufacturing sector that is harboring the most concern."
Decisions in manufacturing have to be made in advance, making this industrial sector generally more cautious and reluctant to make long-term plans. The negatives that caused the manufacturing index to decline just slightly to 53.6 seem to have come from the sector's favorable factors, the most serious of which was new credit applications, which slipped to the lowest since November and the second lowest in the last year. "The overall takeaway for the manufacturing sector is that there appears to be some pent-up demand for growth, but there are also inhibitions that seem to stem from the political wrangles," said Kuehl.
In the service sector, there was some pretty good news, with the gains helping to offset the slips in the manufacturing data. The service sector index improved to 56.2, resulting in the combined index looking more positive. The most impressive gain occurred in sales given that this is not the strong season for the retail community. The sense from the service side is that some of the more stressed sectors are making a bit of a comeback, with housing at the top of the list.
"A couple of conclusions can be reached from the data," said Kuehl. "It is either a testament to the fact that business can ignore political gyrations and grow anyway, or it means that the economy would be growing that much faster if all the political histrionics were not a factor."
- National Association of Credit Management
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According to the terms of last year's antitrust settlement over credit card interchange fees, merchants were allowed to start passing on their processing charges to their customers as of January 27. However, the details of actually levying this surcharge have proven harder to parse.
Merchants implementing the surcharge have to jump through a number of hoops before they're allowed to pass their fees down to their buyers, including giving 30 days notice of the surcharge to their customers, their acquirers and Visa or MasterCard themselves. Fees also had to be capped according to how much the merchant actually pays in processing costs.
In the 10 states where surcharging is illegal, previous reports noted that the ban on surcharging was expected to depend on where the selling company was located, meaning that a business that accepted credit cards and was based in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma or Texas could not pass their processing fees on to their customers.
However, according to Ron Clifford, Esq., an associate at Blakeley & Blakeley, LLP, the opposite seems to be true. "The focus is on where the consumer is located," he noted during a recent NACM teleconference. Theoretically this means that merchants cannot surcharge their customers located in one of the 10 states where surcharging is currently banned, but for merchants selling solely on a business-to-business (B2B) basis, their ability to surcharge might have less to do with where the customer is located and more to do with the nature of the transaction.
Some of the language of these states' surcharging bans focuses exclusively on retailers or business-to-consumer (B2C) transactions, meaning that whether or not a business can surcharge their customers for paying with a credit card could depend more on the business relationship than the customer's address. "When you turn to the legislative intent, most of these go to the B2C setting and not the B2B setting," said Scott Blakeley, Esq., founder of Blakeley & Blakeley, LLP. "Our evaluation is to look at the nature of the trade relationship, and whether it's consumer or commercial."
Credit professionals should tread carefully before implementing the fee, but B2B transactions that involve credit cards might not be subject to a state's ban on surcharging, depending on the text of the state law.
In addition to the 10 states where surcharging is already illegal, 13 other states (Hawaii, Illinois, Kentucky, Maryland, Missouri, New Jersey, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Washington and Tennessee) are currently considering legislation that would implement similar regulations.
- Jacob Barron, CICP, NACM staff writer
Blakeley and Clifford will present a follow-up teleconference on credit card surcharging on April 8. To learn more, or to register, click here.
FCIB Annual International Credit & Risk Management Summit in Prague
Register now for the Early Bird rate!
May 12-14, 2013
The Corinthia Hotel Prague, Prague, Czech Republic
Join us on May 12-14 at FCIB's Annual International Credit & Risk Management Summit to discover insight from distinguished speakers, participate in thought-provoking sessions, and network with lead experts and your peers in an educational environment.
• Basel III and the Impact on Working Capital Requirements, Letters of Credit and Guarantees
• Different Security Methods across Europe and Best Practices
• Risk Awareness in Today's Global Trading Conditions
• Early Warning Signals: Keeping a Pulse on Your Counterparties
• The Effects of Global Instability on the Treasury Department
The Early Bird rate deadline has been extended! Click here to register and save!
To view the entire program, click here.
We look forward to seeing you in Prague!
Perhaps it's time the "Big Three" credit ratings agencies, known for assessing the risk of companies and sovereignties throughout the globe, started publicly addressing their own increasing problems and threats to their business models, as yet another government appears ready to consider bearing down upon them with a regulatory hammer.
Just weeks after the European Union placed new restrictive measures on what the ratings agencies—Standard & Poor's (S&P), Moody's Investors Services and Fitch Ratings—could say in sovereign credit reviews and when they could say it, the U.S. Securities and Exchange Commission has scheduled a credit ratings roundtable on May 14. The SEC is going forward with hearings concerning the credit ratings agencies, which were panned by lawmakers for poor ratings performance in the run-up to the 2007 economic crash, as established by the Dodd-Frank Wall Street Reform and Consumer Protection Act. A section of Dodd-Frank, which was signed into law in 2010, required studies into nationally recognized statistical rating organizations that included a review of whether some of their structured finance products represented a massive conflict of interest and "moral hazard" within the issuer-pay and subscriber-pay models, as well as the potential for new regulations of the agencies, among other measures.
The public review and potential for finger pointing from regulators represents just the latest headache for the ratings agencies. S&P, coincidentally the only one of the three agencies to have downgraded the United States' prized "AAA" credit rating in 2012, was targeted earlier this month in a U.S. Justice Department civil suit seeking damages for its alleged part in the housing bubble and subsequent economic collapse. Earlier in the year, all three were slapped hard by new legislation fast-tracked by European Union leaders.
The EU-approved legislation restricted the timetable in which any of the three agencies could release news of sovereign credit ratings related to any member nation in Europe. The regulations also empower investors to take legal action against the agencies if financial losses can be tied back to what are vague measures of "gross negligence" or malpractice on the agencies' parts. Statements all but confirmed the leadership was collectively angry at the ratings agencies for lowering the ratings and for warning those with massive and escalating debt problems in the EU. The leadership also made known its desire to "reduce the reliance," if not importance, of the agencies on the global stage.
The only significant downgrade since then came against the United Kingdom's domestic and foreign-currency government bond ratings, which were lowered by one notch in the last week. Granted, the UK is not on the euro currency, and thus the move did not generate as much backlash. In addition, Moody's appeared to go out of its way to highlight that the UK's future outlook remained in "stable" territory and atypically gushed over the country's "significant credit strengths" (diversified economy, a strong track record of fiscal consolidation, political "will" and favorable debt structure) in its explanation of the ratings moves.
- Brian Shappell, CBA, NACM staff writer
Announcing NACM's Newest Designation – Certified Credit & Risk Analyst
The Certified Credit & Risk Analyst (CCRA) is an academic-based designation which signals mastery in the analysis and interpretation of financial statements and the ability to make informed credit risk assessments. The three courses needed to qualify for this designation are:
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Qualify to be one of the first to earn this prestigious designation by registering for the Financial Statement Analysis, Interpretation & Credit Risk Assessment course to be held at NACM's Credit Congress in Las Vegas.
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The West Coast port deal was finally ratified late last week, about two weeks after a small group of holdout labor organizations surprised observers by voting against ratification.
The pact involving the parties associated with the busy Los Angeles/Long Beach port—the International Longshoremen's Association, Union's Local 63 Office Clerical Unit and the Harbor Employers Association—was agreed to tentatively, but delayed at the time of ratification after the three organizations rejected the contract over additional concession demands. The contract had been agreed to by a total of 12 organizations representing port workers following a costly, eight-day work stoppage that stretched into early December, the peak shipping season based on holiday-related retail demand. Some estimates noted that upwards of $1 billion in goods per day were blocked during the work stoppage.
National Retail Federation (NRF) Vice President for Supply Chain and Customs Policy Jonathan Gold said the conclusion of the matter "will bring much-needed stability to the supply chain." Now the eyes of exporters, importers and unions move to the east, where the parties of more than a dozen ports came to tentative agreement in their own labor deal. The International Longshoremen's Association and the U.S. Maritime Alliance, Ltd. agreed on the major points of a new collective bargaining agreement, though local agreements and disputes still need to be worked out prior to successful ratification. Therein lies the problem, as reports are surfacing that the process of nailing down some of the local agreements, notably in New York and New Jersey, is not going particularly well, with ratification votes expected to be set in the not-too-distant future, perhaps March.
The NRF urged rationality among players involved in local disputes and a quick ratification of the deal, which would impact ports in Baltimore, Boston, Miami and New Orleans, among others. "From the eight-day strike at the Ports of Los Angeles and Long Beach to the ongoing tensions and extensions on the East and Gulf Coasts, the supply chain has been through enough turmoil the past year," said Gold. "Everyone who utilizes the ports needs to get back to focusing on what they do best: powering our global economy."
- Brian Shappell, CBA, NACM staff writer
March Issue of Business Credit is on the Way around the World
The March issue brings together the finest experts to discuss current global opportunities other issues related to international business. Read about:
- Free trade agreements in the works
- The EU's newly revised late payment directive
- Current business conditions in specific countries and regions
- Accounts of business abroad
- And more
Also, be sure to check out FCIB's specially-designed international education track session information contained within the special Credit Congress section of the magazine.
New data from the U.S. Department of Commerce showed that 29 states set new records for export sales in 2012. A total of 35 states achieved merchandise export growth in 2012, with 20 of those states registering growth of at least 5% or more.
In exports, 2012 was a record setting year all around, reaching an all-time high of $2.2 trillion last year. Jobs supported by exports increased to 9.8 million in 2012, gaining 1.3 million since 2009. According to the Commerce Department, this puts the nation ahead of schedule in completing President Barack Obama's goal, outlined in the National Export Initiative (NEI) announced in his 2010 State of the Union address, of adding two million export-supported jobs by the end of 2014.
"The increase in state exports in 2012 demonstrates that U.S. businesses are carving out a new global market share for their innovative products and services, despite facing economic headwinds worldwide," said Deputy Commerce Secretary Rebecca Blank. "As President Obama emphasized in his State of the Union address, the Administration is committed to giving businesses all the tools they need to expand their exports—including negotiating new trade agreements—in order to support jobs across the United States."
Eleven states experienced double-digit export growth in 2012 as compared to 2011, led by New Mexico (+42%), Arkansas (+36%), Nevada (+28%), North Dakota (+26%) and West Virginia (+26%). Nationwide U.S. merchandise exports to countries with which the country has a free trade agreement outpaced other markets by a near two-to-one margin. This included exports to Oman (+22%), Panama (+20%), Costa Rica (+19%), Chile (+18%) and Jordan (+18%).
- Jacob Barron, CICP, NACM staff writer
Manual of Credit and Commercial Laws, Volume III: Construction Issues—Update Available Now!
New for 2013, language and state laws have been updated throughout the entire volume including:
- Chapter on Personal Property Liens thoroughly rewritten
- Chapter on Trust Funds updated
- Chapters on Liens and Bonds updated
Entire volume updated to reference liens, bonds and trust funds applicable to the 21st century.
NACM's Manual of Credit and Commercial Laws continues to provide essential information for credit professionals, but now in a highly flexible and more affordable format—four volumes that may be purchased separately or as a comprehensive set.
Watch for future updates of volumes I, II and IV.
Click here to get your copy of volume III and for more information about Manual updates and the wide array of resources available to today's credit professionals.
To view past eNews issues or to visit the NACM Archives, click here.