March 15, 2012
Although officials seem eager to trot out headline after headline of positive economic news, the U.S. economy isn't out of the woods yet. In fact, the U.S. recovery could be derailed by a number of factors, and one economist at Wednesday's FCIB International Profit Summit held in New York described caution about the American economy as "well-founded."
In his keynote address, Byron Shoulton, vice president and international economist with FCIA Management Co., Inc., noted that despite the nation's "gradual" recovery, a number of factors could erase many of the recent gains made in employment, manufacturing and consumer confidence.
"The U.S. economy has shown glimmers of improvement over the last few months," said Shoulton. "Job creation appears to be buoyant, with something like 200,000 jobs per month being produced here in the U.S., and growth in manufacturing and even existing home sales are starting to pick up. Car sales, for example, have been higher the last four months than they have been for three years, and even the banks, while they're concerned with Basel III and the Dodd-Frank requirements, are showing a bit more select willingness to lend."
But these improvements are threatened by numerous negative developments, the most pressing of which might be the country's budding energy problems. "We have a rising energy crisis, which is particularly threatening to the recovery. Oil prices are up a little more than 7% since the beginning of this year, and that could eventually dampen the improvements in consumer confidence we've seen the last few months," said Shoulton. "And while the U.S. housing sector is making baby steps toward revival, it remains in critical condition with lots of mortgages underwater."
Until these issues abate, Shoulton noted that the recovery for which the U.S. is so seemingly desperate will remain elusive. "Until housing and construction both recover, a broad U.S. recovery will remain weak and hesitant," he noted, adding that policymakers must leave all options on the table to mitigate these potential problems. "The Federal Reserve cannot rule out further quantitative easing," said Shoulton. "And the U.S. faces a budget deficit this year of $1.3 trillion."
"We are in gridlock, and we face an uphill climb," he added.
Overall, Shoulton noted that his firm is forecasting 1.8% GDP growth for the U.S. this year, up a mere tenth of a percent from the 1.7% growth in 2011.
To find out more about FCIB's educational events, visit their website at www.fcibglobal.com.
Jacob Barron, CICP, NACM staff writer
Father of Z-Score Bankruptcy Prediction Model Scheduled to Lead Session at 2012 Credit Congress
The Z-Score has long been used as a predictor for bankruptcy, and Credit Congress will feature its creator.
Ed Altman, PhD will present "The Evolution and Importance of Corporate Distress Prediction and Financial Health Models and Their Implications" on June 13, one of several sessions covering bankruptcy and dealing with troubled companies.
Join us at this year's Credit Congress, June 10-13 in Grapevine, TX.
Click here to get more information about the Altman session and others.
China facing pressure over issues such as trade and currency policy is nothing new. But it appears a united front against the economic powerhouse has been forged, at least where it concerns the exporting of "rare earth" materials.
In a terse announcement of just one sentence with no follow-up for more than a day, the World Trade Organization (WTO) announced the United States, European Union and Japan have banded together in bringing a trade case against China. The case revolves around Chinese restrictions on the exporting of rare earths, tungsten and molybdenum. Manufacturers in all three areas use the resources in producing high-tech products like advanced batteries, cellular phone technologies and hybrid automotive components.
"Manufacturers need to have access to rare earth materials, which China supplies," said President Barack Obama. "Now, if China would simply let the market work on its own, we'd have no objections. But their policies currently are preventing that from happening. And they go against the very rules that China agreed to follow...We've got to take control of our energy future, and we can't let that energy industry take root in some country because they were allowed to break the rules."
The move is the latest in a series of U.S. officials and organizations turning up the rhetoric on China's business practices. Treasury Secretary Timothy Geithner has lashed out at China several times over the last year on issues such as currency manipulation/under-valuation, which provide a significant trade advantage. Additionally, some lawmakers have been calling for tariffs in certain industries because of perceived Chinese government intervention to help their own. To wit, the Coalition for American Solar Manufacturing, comprised of more than a half-dozen U.S.-based firms, was brought before Congress to detail its allegations that China has been offering its solar energy-product producers illegal subsidies, and that foreign companies were "dumping" products in the United States at artificially low prices, thus, undercutting producers.
Brian Shappell, NACM staff writer
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Not all emerging economies are equal. That appears to be the message China was sending over the last week as it successfully pressured India to turn over a just-introduced product export ban and very publicly announced it was ready to start offering renminbi-based loans to its counterparts in the BRICs—Brazil, Russia and India.
Last week, India shocked markets with an announced ban of cotton and like-fiber exports. Despite textile manufacturers' requests for assistance, as the commodities market activity has caused pricing problems for India's domestic business, China's massive consumption demand seems to have won out.
In a bit of a show of power last week, China howled at the new ban to the extent that it was overturned in less than seven days. For its part, Indian officials went into damage control mode, saying their decision to acquiesce on the ban was rooted more in complaints from their own domestic growers over pricing damage than in outside criticism. India's previous ban on cotton exports in April 2010 caused a notable pricing surge, and a new one appeared to be forming again until Chinese interests essentially put the kibosh on the effort.
This chain of events is happening at an interesting time since representatives from both governments will take part in a BRICs summit to be held in India in late March. Brazil and Russia, as well as faux-BRIC member South Africa, will also send officials to the meeting. There, China will look to formalize a memorandum of understanding in which it will make loans available to its fellow BRICs in its currency, the renminbi/yuan. It's yet another step on the part of China to boost the international use of its own currency while taking a thinly veiled slap at the dollar. In December, China and Japan announced a new currency/trade partnership designed to boost both the renminbi and the yen in trade, among other areas. Though largely symbolic and shrouded in a lack of finite details at the time, the move appeared to be an opening salvo in the message that several international economic powerhouses are trying to gradually reduce their reliance on the dollar as the dominant currency.
While a statement not to be ignored, it's not likely to push the Chinese currency ahead of the dollar on the world stage anytime in the near term. As the Federal Reserve's Matthew Higgins told NACM in an interview as well as attendees at FCIB's New York International Roundtable in September, it could still take decades for the dollar to be replaced as the world's go-to currency.
India will be front-and-center at two FCIB educational opportunities this spring: during the "Doing Business in the BRICs" session at the 2012 International Credit Executives [I.C.E.] Conference in Chicago May 2-4, as well as in the two-day webinar, "Doing Business in India," starting April 24. For more information or to register, visit www.fcibglobal.com.
Brian Shappell, NACM staff writer
Business Credit Online
Current and past issues of Business Credit are online in flip-through format.
It's a great way to get the most out of your membership, especially if you can never find the hard copy of the magazine in your office and want to share it with the rest of your department.
Try it out. The March issue is now available.
Two years ago, President Barack Obama announced the creation of the National Export Initiative (NEI), a loosely defined program built to double U.S. exports in five years. Now, on its second anniversary, the NEI is officially paying politically-advantageous dividends in the form of export-supported American jobs.
The U.S. Commerce Department released data this week showing that jobs supported by American exports increased by 1.2 million between 2009 and 2011. Strong growth in 2010 boosted total export-supported employment to approximately 9.7 million jobs in 2011, while the value of U.S. exports of goods and services exceeded $2.1 trillion for the first time in the nation's history.
"Two years ago this week, President Obama set an ambitious goal of doubling U.S. exports over five years," said Commerce Secretary John Bryson. "The numbers released today show that our exports support an increasing number of American jobs and we simply cannot afford to let up on our efforts to help U.S. businesses build it here and sell it everywhere."
"We must maintain the track record of the past two years and continue to support U.S. companies in selling their goods to the 95% of the world's consumers who live beyond our borders by helping to create opportunities and a level playing field," he added.
Since the president signed an executive order creating the NEI, the Commerce Department, and specifically its International Trade Administration (ITA), has assisted more than 9,200 U.S. companies expand their exporting. In 2011 alone, nearly 6,000 American companies, half of which were small- and medium-sized enterprises, were able to export for the first time or increase their exports to new markets.
The administration itself has also driven other efforts to expand export opportunities for U.S. companies, most notably the U.S.-South Korea Free Trade Agreement (FTA), which took effect today, March 15. With so many export successes, and now an increase in export-supported employment, voters can expect to hear more and more about the president's trade agenda as he ramps up his reelection campaign over the course of this year.
Jacob Barron, CICP, NACM staff writer
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The ailing U.S. solar products industry continued to get bad news over the last week, and on multiple fronts. As political fallout continues amid the bankruptcy and related fraud allegations of a solar energy products firm last year, it appears the U.S. Department of Energy has brought its activity in dispersing loans to clean energy firms to a grinding halt. Meanwhile, a firm that originally intended on reorganizing through bankruptcy continues to struggle and may have admitted its own death knell—while perhaps foreshadowing that of others—in a Monday court filing.
Reports have started to surface in places including in this week's New York Times that funds from many loans, even authorized ones, have not been released with anything resembling regularity. This could spell bad news for creditors—secured and unsecured—as companies that have become dependent on and planned for such funds could find it more difficult to meet their various debt obligations.
Several sources speculated it is fallout from the Solyndra LLC scandal and the firepower the California company's bankruptcy case gave to Obama Administration enemies. Solyndra, a solar energy products firm that gained notoriety during a well-publicized visit by President Barack Obama in 2010, announced plans to file for bankruptcy protection last year amid a federal investigation into fraudulent business practices. It didn't take long for news to surface that multiple Solyndra backers were also major campaign contributors to Obama.
Solyndra was part of a handful of rapid-fire bankruptcy filings by solar power product manufacturers stung because of U.S. market over-saturation and undercutting by Asian manufacturers on pricing and overhead. Also among the filings over the last six to nine months was Evergreen Solar.
Evergreen filed for Chapter 11 protection in 2011 as part of an attempt to reorganize. However, it seemed liquidation may have been the only realistic route for a troubled company operating in a troubled industry. Evergreen filed a motion in the Third Circuit of the U.S. Bankruptcy Court (Delaware) Monday that would, if approved by the judge, allow it essentially to abandon its Massachusetts plant for no money after efforts to sell or lease it to another party within the industry—or even outside of it as time went on—failed. This leaves the pool of money remaining for creditors even smaller, though a judge's previous ruling mandated that unsecured creditors get a least something in the end, even if it's the likely pennies on the dollar.
Brian Shappell, NACM staff writer
Best-in-Class Service from NACM's Mechanic's Lien and Bond Services (MLBS)
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For more information on NACM's MLBS and these workshops, click here.
U.S. job growth remained solid for the third straight month in February, as U.S. employers added a larger-than-expected 227,000 jobs. Although the unemployment rate was unchanged at 8.3%, last month's figures marked the first time since the beginning of last year that payrolls had grown by more than 200,000 for three consecutive months.
Furthermore, the Labor Department revised December's jobs numbers last week up to 223,000 from 203,000, and revised January's numbers up to 284,000 from 243,000.
Although this is good news, NACM Economist Chris Kuehl, PhD noted that there could be a less-talked-about downside to an ongoing trend of employment growth. "There really is no such thing as an unbridled piece of good news in the world of economics," he said. "There are always trade-offs of one kind or another."
In this case, the trade-off comes with inflation, as one of the factors that accelerates this threat is higher wages and gains in unit labor costs. "There is evidence that unit labor costs are rising—and more rapidly than would be preferred given the state of the overall economy," said Kuehl. "The rate of core inflation has been holding pretty steady for the past year or so, but that could be challenged soon by the rise in unit labor costs."
To wit, earlier this week the Labor Department issued productivity and costs statistics for the fourth quarter of 2011, noting that the rate of increase in unit labor costs was 2.8%, more than double the rate that had been registered the month before. "At this point the pace is exceeding the rate of core inflation," said Kuehl, noting that this won't make inflation threats any less benign. "As unit labor costs rise, they eat into the profits of companies and affect the core pricing of products across the board," he added. "This is one of the inflation signals the hawks have been worried about."
Jacob Barron, CICP, NACM staff writer
It's Here! Introducing the "NEW" Manual of Credit and Commercial Laws—2012 Edition
Now in four separate volumes to meet your specific needs. Buy whatever volumes you need, or get the complete set at a significant savings!
NACM has re-envisioned and revitalized its flagship publication, the Manual of Credit and Commercial Laws. Not only will the new edition continue to provide essential information for credit and finance professionals, it will do so in a highly flexible and more affordable format. In its new form, the Manual of Credit now comprises four volumes that either may purchased separately or as a comprehensive set. Chapters and appendices from the book have been reorganized under the following headings:
• Volume I: General Business Law, Related Statutes and Collections
• Volume II: Commercial and Consumer Credit Topics
• Volume III: Construction Issues
• Volume IV: Bankruptcy and Insolvency Issues
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.
Click here to visit NACM's online Bookstore for Manual features and updates, and more information about the wide array of resources available to today's credit professionals.
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