March 6, 2014
The Credit Managers' Index (CMI), published by the National Association of Credit Management (NACM), seems to having a hard time leaving 2013 behind. The February reading fell to 55.6, sending the CMI back to where it was in December, when the index fell to a recent low.
Prior to its December drop, the CMI had been improving since July 2013, but the sense at the end of last year was that the economy was stalling in the middle of the holiday spending season. A month later, the January index bounced back to levels not seen in over two years, reaching 57.3, suggesting that recovery had finally arrived and was accompanied by some expectations of more consistent growth through the rest of 2014. But February's reading indicates that those expectations might've been incorrect, or at least premature, according to NACM Economist Chris Kuehl, PhD. "It appears this will be another one of 'those' years. At least it is starting out that way," he said. "The burning question is yet again, which of these months is going to turn out to be the anomaly?"
With any luck, the February CMI will be an outlier, rather than a grim thesis for the rest of 2014. The index indicated weakness in a variety of areas, rather than just some select issues attributable to one or two specific situations, suggesting what could turn out to be a more universal slowdown. The index of favorable factors stumbled from 61.5 to 59.4, as did the index of unfavorable factors, from 54.5 to 53.1, and the declines within these broader measures were pretty much across the board. Still, Kuehl noted that while the slowing was broadly represented, the chances of whether this downward trend will continue could go either way. "This may all end up being related to the bad weather this winter or it could be deeper and connected to continued weakness in the consumer and the business reaction to this consistent caution," he said.
Among the favorable factors, sales slipped from 61.5 to 59.4, marking only the second time the reading has been below 60 in the last 10 months. New credit applications barely moved but tracked in the wrong direction, from 58.2 to 58.1, and dollar collections slipped from 60.9 to 58.8, erasing the gains made in January. The most serious blow dealt in February's favorable factors might have come in amount of credit extended which, although it still remains above 60, fell from 65.4 to 61.4, the lowest reading since April.
Across-the-board declines were found in the unfavorable factors as well, as rejections of credit applications erased the gains of the last two months and fell from 54.6 to 52.3. Accounts placed for collection slipped from 55.2 to 54.6, but remains about where it has been floating for the last several readings. Disputes went from 52.2 to 51.9 and dollar amount beyond terms went from 52.8 to 51.1. Neither are huge drops, but they could be cause for some concern for what happens in the next few months. Dollar amount of customer deductions went from 51.6 to 50.4, which, along with accounts placed for collection, leaves the category in roughly the same range it's been in for the last six months. Filings for bankruptcies also fell, and more steeply than expected, from 60.5 to 58.5, which is the lowest reading since August.
"The sense is that slow growth is starting to have an impact on the survival of business and some of that is to be expected, especially in the retail sector," Kuehl said. "The holiday season was not very robust and for companies that rely on those last months of the year, this can be the difference between staying open another year and giving up. As the economy slogs along, it is producing a growing number of businesses no longer positioned for survival."
To view the full February report or CMI archives, click here.
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The National Association of Credit Management (NACM) announced its support of H.R. 776, the Security in Bonding Act this week as the bill was considered by the House Small Business Committee. In particular, the bill's provision that would require all sureties on federal construction projects to meet the same financial and actuarial requirements as "corporate sureties" stands to greatly benefit NACM's membership, more than half of which is comprised of commercial credit, financial and risk management professionals that work in the construction industry.
"For our members, when extending credit to a general contractor, the presence of a bond from a so-called 'individual surety' can often be considered a financial red flag. This is because when a bond is posted via an individual surety, rather than a federally-assessed and approved corporate surety, it's often a sign that the general contractor could not meet certain underwriting requirements, and could therefore be in financial distress," said NACM, in a letter of support signed by Chairman Chris Myers and President Robin Schauseil, CAE. "This makes it harder for our members and their companies to provide the goods and services that are necessary to the project's completion, and limits the flow of commercial credit that drives the nation's economy."
The Security in Bonding Act would also give more businesses the opportunity to engage in the federal construction market. The fear of not being paid for work performed due to an inadequate bond pledge keeps many smaller companies out of the market, but with H.R. 776, these businesses can participate with confidence, increasing competition and ultimately increasing value for the American taxpayer. Subcontractors and materials suppliers that already do business on federal projects would also be able to sell to general contractors on more favorable terms, safe in the knowledge that the bond securing their investment provided by either an individual or a corporate surety is backed by sufficient assets.
"H.R. 776 is a vital piece of legislation that can broadly increase the flow of commercial credit in the construction industry, greatly enhance the cost effectiveness of the federal procurement process and contribute to small businesses' ability to grow and create jobs," the letter said. "NACM strongly endorses the bill, and looks forward to working with lawmakers in the future to enact common sense legislation that benefits every company that participates in the nation's construction industry."
To learn more about how NACM helps construction creditors, visit NACM's Secured Transaction Services.
- Jacob Barron, CICP, NACM staff writer
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President Barack Obama issued a broad Executive Order today aimed at any and all parties determined to be "responsible for or complicit in" threatening the sovereignty of Ukraine. The full Order names no entity specifically, blocking "all property and interests in property that are in the US, that hereafter come within the US, or that are or hereafter come within the possession or control of any US person (including any foreign branch)" of any party the Treasury and State Departments determine is contributing to the ongoing situation in Ukraine.
Blocking "all property and interests in property" prohibits US companies from making any contribution or provision of funds, goods or services by, to or for the benefit of any person whose property and interests in property are blocked, pursuant to the Order. Since its stipulations are so broadly drawn, the Order could have serious ramifications for US companies with interests in the area, and these entities should immediately review their dealings with customers in the region to avoid violating the Order.
The sanctions were the latest step taken by the US as it scrambles, with the European Union, to punish the Kremlin's incursion into Ukraine's Crimean peninsula.
Prior to the Order, the US had previously moved to shore up its other trade ties in the region, as Trade Representative Michael Froman reached out to the heads of two former Soviet satellite states that serve as important strategic buffers between Russia and the West. Just before the end of February, Froman met in Washington with Georgian Prime Minister Irakli Garibashvili to discuss the countries' shared interest in increasing bilateral trade and investment and continuing the US-Georgia High-Level Dialogue on Trade and Investment. Then, earlier this week, Froman and Moldova's Prime Minister Iurie Leancă opened the meeting of the US-Moldova Joint Commercial Commission, where officials worked to bolster trade between the US and Moldova as Froman confirmed US support for Moldova's efforts to integrate with Europe.
Russia has attempted in the recent past to bring both Georgia and Moldova further into their economic sphere of influence, most recently using flimsy accusations of impurities to ban imports of Moldovan wine last year to punish the country after it signed a free trade agreement with the EU. The West accommodated Moldova after the ban, with the EU reducing tariffs on the country's wine, which serves as the lynchpin of Moldova's agriculture industry, and Secretary Kerry announcing a US trade mission to help Moldovan exporters enter the American market. Froman's attempts to reach out to two countries previously targeted by Russia for potential buffer-state status are no coincidence, particularly as the Kremlin continues to assert itself in Crimea, and the Order, though broad, aims to isolate Russia without negatively affecting the US' strategially-important trade ties in the region.
- Jacob Barron, CICP, NACM staff writer
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The Global Manufacturing Purchasing Managers' Index (PMI) surged to levels not seen in either of the last two calendar years this month, largely on the backs of the traditional major economies.
The Global PMI, published by Markit in accordance with JPMorgan, reached 53.3 in February. That's up slightly from the 53 posted in January and good for a 34-month high. "The global PMI has signaled expansion in each of the past 15 months and, in broad terms, maintained a gradual upward trend since April of last year," Markit noted in a statement. However, "disparities remained between the developed and emerging markets."
Among the winners were the United States and primarily the western and northern EU nations. The US Manufacturing PMI spike from 53.7 in January to 57.1 illustrated its sharpest improvement in manufacturing business conditions since May 2010, which Markit characterized as "robust." New order growth and output both surged and should reassure the most important market watchers.
"The final PMI reading came in even higher than the already-strong flash estimate…this solid trend offers some reassurance to the Fed that the recent weakness in the official production and payroll data is primarily weather related, meaning the FOMC will be keen to continue to taper its asset purchases," said Markit Chief Economist Chris Williamson.
Meanwhile, the Eurozone Manufacturing PMI continued to impress with a reading of 53.2 in February. Though slightly off pace from January, it was expected given that last month represented a 32-month high. Importantly, positive news came from countries like France where most of last month’s gains were maintained and contraction eased. "Trends are moving in the right direction, and the recovery is broadening out," Williamson said.
On the flip side, statistics indicate PMI contraction in China, South Korea and Russia as well as lagging, below-average statistics in Brazil, Indonesia and Vietnam.
|Manufacturing PMI||Jan. 2014||Feb. 2014||Notes|
|Brazil||50.8||50.4||Expansion rate marginal, off series average|
|Canada||51.7||52.9||Export levels expected to strengthen through 2014|
|China||49.5||48.5||First drop in output and new orders since July|
|Czech Republic||55.9||56.5||Solid exchange rate, second-best order growth ever|
|Egypt (non-oil)||48.7||50.0||Input cost inflations eased, optimism still low|
|France||49.3||49.7||First output rise in seven months, order decline easing|
|Germany||56.5||54.8||Unusually mild winter benefitted orders, output|
|Greece||51.2||51.3||Output, new orders up while output prices fall|
|Indonesia||51.0||50.5||Exporting up on reports of stronger demand|
|Japan||56.6||55.5||Operating conditions still strong after eight-year high in Jan.|
|Mexico||54.0||52.0||Weakest rise in production and new orders in three months|
|Netherlands||54.8||55.2||Output eases slightly, but export orders spike|
|Poland||55.4||55.9||Second-best rise in new business in survey history|
|Russia||48.0||48.5||Fourth-straight month below growth/contraction line (50)|
|Saudi Arabia||59.7||58.6||Expansion rate still strong, output price inflation at one-year high|
|Spain||52.2||52.5||Third straight uptick in output, new orders|
|South Korea||50.9||49.8||Orders stagnate, but silver lining in strong Chinese orders|
|Turkey||52.7||53.4||Best new orders increase in three months|
|United Arab Emirates (non-oil)||57.1||57.3||Orders strong, output still near December’s 32-month high|
|United Kingdom||56.6||56.9||Stronger domestic market the primary driver of recovery|
|Vietnam||52.1||51.0||New orders are up, but fall in export orders is concerning|
- Brian Shappell, CBA, CICP, NACM staff writer
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Residential real estate and, thus, the B2B construction industry enjoyed considerable momentum during parts of 2013. However, the final month of the year, like November, was not able to maintain the positive trend.
Statistics unveiled last week by Standard & Poor's and Dow Jones in the form of the S&P/Case-Shiller Home Price Index showed the second consecutive monthly decline of 0.1%. Miami showed the biggest increase (0.9%) between November and December, but only five other cities—Dallas, Las Vegas, San Francisco, Tampa and Washington, DC—gained in the final month of the calendar year. The worst losses, on a monthly level, occurred in Minneapolis (-0.7%), followed by Chicago and Seattle (tied at -0.5%). The analysis suggested that increasing home prices and mortgage rates, along with colder than normal weather, continued to drag on housing growth.
Still, despite losing a little bit of steam, the news was not all bad. "The S&P/Case-Shiller Home Price Index ended its best year since 2005," said David Blitzer, chairman of the Index Committee. All 20 markets tracked for the index showed annual gains, most of which were double digit percentage-wise. The greatest one-year change rates were found in Las Vegas, Los Angeles and San Francisco, which all posted gains above 20% through December 2013. Atlanta and San Diego rounded out the top five.
- Brian Shappell, CBA, CICP, NACM staff writer
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