June 27, 2013
The June Credit Managers' Index (CMI) from the National Association of Credit Management shows that the positive growth in May was real and provides some interesting opportunities for the economy going forward. According to NACM Economist Chris Kuehl, PhD, "The credit industry is one of those harbinger sectors. Movement in the economy is heralded by movement in credit—positively and negatively. In the early days of the recession, the collapse in credit signaled what was to come as the CMI was plunging into the 40s and 30s before the rest of the economy really knew what had hit it. Now there is solid multi-month evidence of a resurging credit sector that will likely lead to more overall economic progress."
The June combined CMI numbers reached 56.1—not as dramatic a jump as last month's, but still trending in the right direction. The reading is now as high as it has been since the recession started to drag the whole economy down. The index of favorable factors dipped a little from the reading last month, but still remained in the 60+ category at 60.8. That is higher than it has been any month other than May and that bodes very well for the future. Sales remained well above 60, but slipped slightly from 63 to 62.3, while the new credit applications reading fell just a bit from 59.2 to 58.8. The dollar collections category was basically stable—going from 59.2 to 59.3—and amount of credit extended fell from 65.0 to 62.8. This has been perhaps the steadiest of the favorable categories, as the range has been pretty narrow over the last year. The low point was 60.8 in April and the high was 65.0 in May. Every month over the last year has seen readings in the 60s.
The improvements in this month's CMI came in the unfavorable factors, which is actually very good news. The overall index jumped from 51.6 to 53.0, creating a high water mark for this sub-category's readings over the last two years. Rejections of credit applications improved from 50.8 to 52.6, which means that while there were slightly less credit applications submitted, more of them were accepted. As Kuehl noted, "There are more companies with good credit applying now and that is a positive sign for everybody." Accounts placed for collection also improved from 50.6 to 53.9, a level not been seen in over 21 months.
The consumers of credit are staying more current than they have been. The disputes category moved out of the 40s for the first time since February, as it went from 48.5 to 51.9. This is another sign that there is less tension within the ranks of the credit department. Dollar amount beyond terms was one of the few sectors that saw a big drop—from 54.1 to 50.5, suggesting that some credit departments are allowing key customers a bit of slack and more flexibility than they have in the past. Dollar amount of customer deductions also moved out of the 40s for the first time since February and at a decent pace to 52.5 while filings for bankruptcies stayed roughly the same—moving up slightly from 56.0 to 56.8. "It is really hard to overstate the significance of these readings given the place that credit management holds in the overall economy," said Kuehl.
If the overall CMI is telling a generally positive story, the manufacturing sector is trumpeting one. This somewhat contradicts the other manufacturing indicators that have been released in the last few months, but on closer examination there may be more positive news in those other readings than first assumed. The overall index for the manufacturing category rose from 54.5 to 55.8, the highest level reached in over two years. There was a slight increase in the overall index of favorable factors, but the most important aspect of that slight rise is that whole category is now in the 60s and that has not occurred since June of last year. The gains in the overall unfavorable category were significant as well. The index moved from 51.1 to 52.9 and that sets the high mark for the last 20 months. This the first time in close to two years that all the categories in the unfavorable index were above 50 and thoroughly in the expansion category. Kuehl writes, "This is a very positive development for a manufacturing community that many had been prepared to write off, again."
The wild partying may have come to an end with the data from the service sector, although the decline in the overall index was very small—moving from 56.6 to 56.5. This leaves the index close to the average that has been seen most of the past year. The bulk of the decline came from the index of favorable factors as the overall index slipped from 63.6 to 61.6. The good news is that this is still well into the 60s and on the high side of average for the bulk of the last year.
In summary, Kuehl noted, "The year-over-year numbers are still looking up. The trend is now solidly in the middle of the 50s and that is far better than it was only a few months ago. It is still early to declare that this will be a trend for the rest of the year, but it certainly looks far more optimistic than in the past."
The complete June CMI report, including charts and graphs, can be found here.
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VA Small Business Commission Makes No Recommendation on HB 2198, Urges Parties to Work Together on Legislation
At its meeting on June 26, the Virginia Small Business Commission made no recommendation about whether to support or oppose House Bill 2198, which would affect commercial credit reports in the commonwealth. It did, however, urge both parties in favor of and against the bill to work together to find common ground to address a perceived problem regarding the rights of the subject of a commercial credit report.
NACM has opposed HB 2198 since its introduction and was on hand at the meeting to make the case against the bill's identification provision. This measure would require commercial credit reporting agencies to make the source of a certain piece of information on a commercial credit report known to the subject of that report, if the information was considered "negative," a term the bill fails to define.
Virginia Delegate Michael Watson (R), who originally introduced HB 2198, was on hand at the meeting to make his case in favor of the bill, supported by a number of his colleagues from the House of Delegates. Specifically, Watson framed the bill as fundamentally pro-business and drew comparisons to the rights of consumers as they pertain to accessing and amending their credit reports, arguing that Virginia businesses should have the same rights.
NACM's contingent, comprised of representatives from NACM's membership, affiliate management and national staff, was accompanied by other representatives from the commercial credit reporting community. All of them noted that the bill fails to address what initially drove its introduction: a rash of aggressive and misleading marketing tactics used by a credit monitoring service to scare Virginia businesses into believing they had to pay for a subscription service to fix their company's credit report.
Instead, the bill aims to institute reforms that could threaten the availability of credit information on Virginia businesses, as companies that contribute trade lines and payment data to the commercial credit reporting agencies might stop reporting rather than face identification, and possible retaliation, by their customers. Testimony about this risk provided by NACM South Atlantic COO Anton Goddard and Richmond-area NACM member and Credit Manager Doug Strobel was of particular note to the members of the Commission. They appeared receptive to this concern and it seemed to partially drive their decision to neither endorse nor reject the bill.
Work to find a compromise among all parties concerned will begin immediately, and any resulting new legislation will be considered by the Small Business Commission in the fall. Should the parties be unable to reach an agreement, the Commission will consider HB 2198 again, and either make a recommendation to reject the bill or support its inclusion in the agenda for the commonwealth's next legislative session.
NACM will be monitoring the bill in all its forms throughout and opposing any legislation that could restrict the free and open exchange of credit information. If you have any questions or comments about HB 2198, please contact Jacob Barron, CICP at firstname.lastname@example.org
- Jacob Barron, CICP, NACM staff writer
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Officials in Stockton, CA put forth a tax plan last week that aims to improve city life and also buoy the city through its Chapter 9 bankruptcy filing.
When Stockton filed nearly a year ago, it was the largest municipal filing in United States history. That title has since been usurped by Jefferson County, AL, but Stockton still remains an example of a cash-strapped California city trying to make its way back to solvency.
Doing so won't be easy and it seems the Stockton City Council is taking only a slightly less populist approach to reorganizing its debt than Detroit's Emergency Manager Kevyn Orr. Orr's plan, which is still being negotiated, intends to usher Detroit out of the red on the backs of bondholders without asking too much of residents. The lynchpin in Stockton's plan, however, is a sales tax hike to 9% from 8.25%, the proceeds of which would be used to hire 120 police officers, fund other safety programs and, more generally, to help Stockton exit bankruptcy with a reorganization plan in place.
Stockton isn't asking only its residents to help with its debt woes, however. The City Council's budget plan also includes $12 billion in debt payment defaults. So far, while the city hasn't missed its obligations to the California Public Employees' Retirement System (CalPERS), the state pension fund, it has missed $12 million in debt payments.
Earlier this month Fitch Ratings maintained its Ratings Watch Negative ruling on the Stockton Public Finance Authority, citing continued threats and uncertainty regarding the city's trip through Chapter 9. "The city's actions in recent months call into question the city's ultimate willingness to pay debt service on system obligations," said Fitch in its assessment. "The ratings could deteriorate rapidly and significantly, sensitive to future actions by the city and developing external pressures, including bankruptcy court rulings, higher reset rates for series 2010A bonds and potential bank bonds, which could adversely impact system operations and bondholders."
- Jacob Barron, CICP, NACM staff writer
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Newly-minted U.S. Trade Representative (USTR) Michael Froman, who was sworn in last week, has already received suggestions from the House Small Business Committee on how to reduce trade barriers for smaller companies.
At a hearing this week, Small Business Committee Chairman Sam Graves (R-MO) promoted his committee's Export Principles for the 113th Congress, a loosely-defined collection of maxims aimed at helping small businesses grab a greater percentage of the export market. Even in more deliberate economic conditions, small businesses have increased their participation in international trade, according to a survey published earlier this month by the National Small Business Association (NSBA) and the Small Business Exporters Association (SBEA). In addition to finding growth in small business exports over the past three years, the survey also found that many small firms lacked information about how to proceed in the export market and were confused by the involvement of federal agencies.
"Similar to small and medium-sized enterprises (SMEs) throughout the U.S., we do not have large legal teams or in-house regulatory departments to navigate complicated international rules for global commerce," said Brooke Fishback, international sales manager at Health Enterprises, Inc. in her testimony before the Small Business Committee. "Instead, we rely on the USTR to negotiate beneficial, easy-to-understand trade agreements, so that we can sell our markets to those 95% of consumers that live outside of our domestic market."
As a solution to such issues, echoed by other small business owners throughout the hearing, Graves pushed provisions from a package of three bills introduced by Small Business Committee members, specifically measures that would establish stronger congressional oversight and coordination of trade assistance programs as well as a framework for federal and state trade agencies to work in unison. Both provisions are included as part of legislation being considered by the House Foreign Relations Subcommittee on Terrorism, Nonproliferation and Trade.
"Small businesses will boldly take their products and services to world markets, but we have to make sure they have an open door," said Graves at the hearing. "Free Trade Agreements (FTAs) must streamline access to foreign markets so that small businesses have the resources to make that investment. We heard the message for the U.S. trade representative today that small business goods and services can compete, but too often they face unfair trade conditions."
- Jacob Barron, CICP, NACM staff writer
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Over 90% of community banks, relying on capital from the U.S. Treasury's Small Business Lending Fund (SBLF) saw stronger small business lending thanks to the program, according to the results of a survey released last week. The report, released by Treasury to coincide with National Small Business Week, also noted that the SBLF has benefitted small companies across a wide array of industries and regions, and that over 80% of the business loans made by SBLF participants have been for $250,000 or less.
By Treasury's estimate, dividing the average loan size reported by SBLF banks by the program-wide $8.9 billion lending increase reported in April 2013 shows that SBLF participants have increased small business lending by an additional 38,000 loans as of December 31, 2012.
The SBLF has become an important feather in the Obama Administration's cap as it seeks to address a persistent post-recession lack of available financing for small businesses. A recent poll released by the American Sustainable Business Council (ASBC) and the California Association for Micro Enterprise Opportunity (CAMEO) found that almost half of small business owners say that access to credit is currently a problem for their business.
This being the case, Treasury was eager to tout the program's successes. "Across the country, the Obama Administration's Small Business Lending Fund is helping small business owners gain access to the capital they need to expand their businesses and hire additional workers," said Deputy Treasury Secretary Neal Wolin. "These increases in lending allow entrepreneurs to turn their hard work and good ideas into thriving businesses, moving our economy and country forward."
Regionally, SBLF participants in the South and Midwest reported the largest estimated increases in the number of small business loans (20,200 and 8,700 loans, respectively), followed by the Northeast (5,500 loans) and the West (3,600). Participants also noted that the service and agriculture sectors have received the largest estimated percentages of additional loans made using SBLF funds.
The Small Business Jobs Act, passed in 2010, created the SBLF to encourage community banks to increase their small business lending by connecting cost of capital to levels of loans made to small companies. Treasury has invested more than $4 billion in 332 institutions through the SBLF.
- Jacob Barron, CICP, NACM staff writer
Do You Know the Law?
The Manual of Credit and Commercial Laws, Volume III: Construction Issues is new for 2013. Language and state laws have been updated throughout the entire volume including:
- Chapter on Personal Property Liens
- Chapter on Trust Funds
- Chapters on Liens and Bonds
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Watch for future updates of volumes I, II and IV.
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