January 30, 2014
January's reading for the Credit Managers' Index (CMI) from the National Association of Credit Management (NACM) rebounded to 57.3, the highest point reached in over a year and even more robust than the 57.1 notched in November. This now begs the question, which of the last three months is signaling the real trend? The November CMI hit a two-year high followed by a December low that took the index back to summer levels and now the January is back to highs not seen in two years. In December, there was a palpable gloom falling over the economy where the data was concerned. The December CMI recorded a low not seen since July and it looked as if all the gains that started to accumulate in the third and fourth quarters were evaporating. The January data dispels that mood a little.
The factors comprising the CMI provide more insight. All of the favorable factors improved in January. Sales regained some of its former momentum and climbed back into the 60s to 61.5 after falling to 58.7 last month. Granted, this is still on the low end of the 60s, but is trending in a more positive direction. New credit applications rose from 57.2 to 58.2, with the biggest improvement occurring in dollar collections, which jumped from 58.7 to 60.9, its first time over 60 since October. There was also a very significant jump in amount of credit extended from 62.6 to 65.4, marking its first time cresting over 65 since May. Finally, amount of credit extended hasn't been this high in almost three years and shows that credit is far more accessible now than it has been in some time. The favorable factor index regained a little of its luster and is back in the 60s with a fairly comfortable margin of 61.5 compared to December’s 59.3.
The unfavorable factor index also provided some good news. The majority of the factors showed improvement and some truly regained the momentum that had been building in the months prior to December. Rejections of credit applications remained stable, moving up from 54.5 to 54.6, which is certainly better than the stagnant course recorded in the last few months. The reading hit the bottom of a downward trend in May at 50.8 and barely budged from June on. Accounts placed for collection improved quite a bit from 53.4 to 55.2, suggesting the little slump recorded at the end of the year did not force many companies into a state of distress. There was similar improvement in disputes from 50.7 to 52.2, which washed away end-of-year worries that struggling companies would be pushed over the edge and would start to become a challenge from a collection point of view. Dollar amount beyond terms was one of the big gainers, jumping out of contraction territory from December’s 49.7 to January’s 52.8. Finally, dollar amount of customer deductions stayed almost the same, improving very slightly from 51.5 to 51.6 and filings for bankruptcies posted a nice improvement from 59.0 to 60.5. Overall, the unfavorable factor index steadied more than many had expected with its bump from 53.1 to 54.5.
"The numbers posted in the December CMI were anything but inspiring and seemed to match a general lack of enthusiasm in the economy," said NACM Economist Chris Kuehl, PhD. "It was suggested that the low reading was likely an anomaly and, with the rebound in January, it now appears this is the case. The next set of data will attract a lot of attention as analysts seek to determine whether there is a clear trend back to more positive readings and if this will occur on a more consistent basis."
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Lawmakers in Virginia continued to approach efforts to regulate commercial credit reporting agencies with ambivalence this week, as a House of Delegates subcommittee voted to continue House Bill 370 to 2015.
Essentially, lawmakers in the second subcommittee of the House Committee on Commerce and Labor, where HB 370 had previously been referred, chose to neither kill nor endorse the legislation. HB 370's continuance means that the bill can potentially be reconsidered later, but that failing any efforts by delegates to do so, it will be delayed until next year.
The Virginia Small Business Commission, a code-created legislative entity comprised of delegates, state senators and civilians, took similar action last year on House Bill 2198 when it made no recommendation on that legislation. After failing to receive an endorsement, HB 2198 was then amended to weaken some of the most controversial restrictions it would have placed on commercial credit reporting. The resulting bill was introduced as HB 370 earlier this month.
Staff in the Commerce and Labor Committee noted that, similar to the Virginia Small Business Commission, subcommittees can only make recommendations on bills rather than take binding legal action for or against legislation, meaning that almost any bill can be brought back up for reconsideration either at the full committee level or in the full House of Delegates. Continuing a bill to the following year typically suggests that lawmakers believe the legislation needs to be tweaked before they determine how to proceed.
NACM opposed HB 2198 throughout 2013 primarily for the bill's identification provisions, which would have required commercial credit reporting agencies to identify the source of so-called "negative information" to the subject of a commercial credit report. HB 370 boiled HB 2198 down to two major provisions that require commercial credit reporting agencies to provide the subject company a free copy of their commercial credit report, less any information that's deemed proprietary, and provide the subject of a report with further recourse to challenge an "inaccurate statement of fact" on their credit report beyond a commercial credit reporting agency's standard means of dispute resolution.
HB 370 still could have implications for the commercial credit reporting industry, and concerns linger about how its provisions could potentially weaken the strength and value of commercial credit reports on Virginia businesses. NACM will continue to monitor the legislation throughout 2014 and beyond.
- Jacob Barron, CICP, NACM staff writer
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Concerns about growth in the previously hot, emerging world economies have been escalating for some time, but rarely so much in a matter of days as seen during the last week.
Recent events seem to illustrate that nearly all emerging economies are still deeply dependent on positive developments in powers like the United States, China and the better-positioned economies within the European Union, at least from a consumption standpoint. Adding to the fear of the sting that will come with the inevitable easing of stimulus efforts within the US and news of lackluster Chinese manufacturing statistics unveiled this month was the series of mini-crises this week in Brazil, India, South Africa, Thailand and Turkey, caused by an apparent flight of investors.
The iShares MSCI Emerging Markets EFT showed major volatility and sell-offs this week for a number of reasons, not the least of which were threats to several emerging market currencies. India’s rupee, South Africa’s rand and Turkey's lira all turned in particularly poor performances. The central banks of each surprised market reacted quickly with rate hikes aimed to stem problems tied to investor flight and falling 2014 economic expectations. India increased the interest rate benchmark by 25 basis points, and South Africa followed with a 50-point bump. Turkey, valued so much as the bridge economy between Muslim and Western worlds, took the cake with a shocking 425-basis-point increase.
Even beyond the echo effect of the US tapering of its quantitative easing/easy money and reduced consumption by the Chinese and Europeans, there are significant issues dogging the emerging nations that had worked so hard to become international economic players:
- Turkey: Roiled by newer political corruption issues; fear of spillover problems from conflict in neighboring Syria.
- South Africa: Increasingly unstable in part because of mass poverty and income gap.
- India: Infrastructure is still well behind where it needs to be; is continually losing its identity as a destination for outsourcing.
- Brazil: Ongoing inflation concerns and a general inability to maintain a wave of strong growth is hindering the nation perennially noted for its potential.
- Russia: Has done little to ease wariness of business and political corruption in both internal policies and those with trade partners (particularly a growingly unstable Ukraine); is set to host an Olympic Games that could be to the benefit or detriment of confidence in its economy.
Granted, many of the problems can be eased considerably, at least on the surface, if growth rates in the US, China and Europe track at better-than-forecast levels, but that's quite a gamble for several nations now hitting some serious turbulence. To a lesser extent, a drama-free Russian Olympics and Brazilian World Cup this year could help these nations and close trading partners.
- Brian Shappell, CBA, CICP, NACM staff writer
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Mississippi could soon greatly expand its application of lien rights to include subcontractors and materials suppliers by enacting a bill modeled on Georgia's lien statute, according to Chris Ring of NACM's Secured Transaction Services (STS).
Two bills were filed, one in the Mississippi House of Representatives and one in the State Senate, in response to a ruling last year by the US Fifth Circuit Court of Appeals in Mississippi that affirmed a lower court's ruling that found the state's Stop Notice statute unconstitutional. The ruling stripped away one of the only means by which subcontractors and suppliers could pressure general contractors to make payment on a project. It also further limited Mississippi's construction payment protections, which essentially only grant lien rights to parties that have a direct contract with the project owner.
Subcontractors and suppliers in the state are fighting to enact a new lien statute through either Senate Bill 2622 or House Bill 744, but due to some idiosyncrasies in the Mississippi legislative system that provide for bill substitutions, companies and credit professionals hoping to support the enactment of a new lien statute in the state by contacting legislators should refer to the Georgia-based lien law in any communications, as this statute is viewed as more favorable to subs and suppliers. A competing effort to amend either of the two bills to resemble Alabama's lien statute is considered inferior for subs and suppliers, so specifying the Georgia-based statute is critical to making their voices heard.
Meanwhile, potential changes to Arizona's notice filing requirements could greatly simplify the 20-day preliminary notice process. Sources within Arizona's construction community have noted that a rough draft of a bill expected to be introduced in the 2014 legislative session included language that would have Arizona adopt a computerized registry for providing 20-day notices similar to the one in Utah. Currently, under Arizona state law, as a necessary prerequisite to the validity of any claim of lien, such notice must be provided, in writing to several parties and in accordance with strict guidelines. If drafted to avoid some of the pitfalls that characterized, and still characterize, the system in Utah, the registry could eliminate many of the technical defenses that parties use to invalidate liens on the basis of notice errors.
Finally, subcontractors in Ohio are eagerly awaiting an important ruling in Transtar Electric, Inc. v. A.E.M. Electric Services Corp. on the issue of general contractors using "pay-if-paid" clauses to sidestep lien rights and avoid paying subcontractors, which is expected to be handed down by the State Supreme Court by spring, according to sources in the state. The case is important because, as Ring characterized it, such clauses are "a kissing cousin to a no-lien contract" and an infringement on subcontractors' rights. It also underscores the importance of credit managers being privy to reviewing big-dollar contracts before they are signed.
Learn more about these and other news items affecting construction law nationwide on the STS website.
- Jacob Barron, CICP, NACM staff writer and Brian Shappell, CBA, CICP, NACM staff writer
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Key Standard &Poor's/Case-Shiller Home Price Indices showed only the slightest decline in the most recent monthly tracking period. But a stability that's significantly higher than one year ago continues to be positive news for businesses tied to the housing and construction industry.
Both the 10-City and 20-City Composites dropped 0.1% between October and November 2013, according to S&P Dow Jones Indices, which publishes Case-Schiller. The November 2013 levels of both composites also showed nearly 14% increases from those of November 2012. The chairman of the Index Committee, David Blitzer, noted that the performance was particularly strong for a November and actually the best for the month since 2005.
Within the numbers, good news continues to come out of formerly beleaguered markets Las Vegas, Phoenix and Los Angeles. Each has registered at least 20 consecutive monthly gains through November. Las Vegas also showed the biggest one-year change in the November statistics, up 27.3%. Miami leapfrogged the September-October pacesetter Las Vegas in monthly tracking, leading the way with an October-November gain of 1.4%. The worst monthly performance was found in Chicago (-1.2%), while the worst annual performance was noted in New York and Cleveland (both at +6%).
- Brian Shappell, CBA, CICP, NACM staff writer
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President Barack Obama sounded some familiar notes on trade and manufacturing issues in his State of the Union address this week. Overall, the president's 2014 address was light on new proposals and relatively modest compared to prior years when he used the address to burnish his business credentials or push for new trade agreements.
On trade, the president pushed for the approval of Trade Promotion Authority (TPA) so that the agreements proposed in previous addresses can be quickly approved, defining these efforts in terms of how they'll benefit small businesses. "Let's do more to help the entrepreneurs and small business owners who create most new jobs in America. Over the past five years, my administration has made more loans to small business owners than any other, and when 98% of our exporters are small businesses, new trade partnerships with Europe and the Asia-Pacific will help them create more jobs," Obama said. "We need to work together on tools like bipartisan TPA to protect our workers, protect our environment and open new markets to new goods stamped 'Made in the USA.'"
"China and Europe aren’t standing on the sidelines. Neither should we," he added.
The president also reiterated his support for tax reform that incentivizes companies to invest in the US rather than other countries. "With the economy picking up speed, companies say they intend to hire more people this year, and over half of big manufacturers say they’re thinking of insourcing jobs from abroad," Obama said. "Both Democrats and Republicans have argued that our tax code is riddled with wasteful, complicated loopholes that punish businesses investing here and reward companies that keep profits abroad. Let’s flip that equation. Let’s work together to close those loopholes, end those incentives to ship jobs overseas and lower tax rates for businesses that create jobs here at home."
As a means to invite more companies into the US, the president also endorsed upgrades to the nation's infrastructure and the restoration of funding cuts made by the sequester that negatively affected federally-funded research and development. Obama also discussed the expansion of the nation's energy production and, among the hottest topics in his address, the enactment of an immigration reform bill as an economic salve.
- Jacob Barron, CICP, NACM staff writer
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