May 3, 2012



News Briefs

  1. NACM's April CMI Depicts Economy on Brink of Another Slump
  2. Obama Executive Order Aims to Help Harmonize U.S., International Regulations
  3. EU Late Payment Directive Revamp Flawed
  4. U.S. GDP Growth Slows in First Quarter, Consumer Spending Increases
  5. Fitch Knocks China for Differences Between State, Private PMI

 

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NACM's April CMI Depicts Economy on Brink of Another Slump

After five straight months of gains, the Credit Managers' Index (CMI) slipped to 55.1 from the March reading of 56.2, and just slightly above the January reading. The decline is not drastic and, excluding February and March, the CMI is higher than the months since April 2011 when it stood at 55.8. The CMI had been the one economic bright spot for much of the year, at least up to now. April has not been a month to write home about, and for the last few weeks, analysts have been trying to decide whether the economy is on the edge of another spring swoon, which would repeat the slide from this time in 2011 and 2010. A lot of the factors are not the same as they were in either of these years, but the data that emerged in the last week did not inspire much confidence or enthusiasm. The growth in jobs has slowed and people seem to be getting laid off again. The latest durable goods orders are not looking good and there was some pretty gloomy prognostication coming from the Federal Reserve.

The decline in the CMI is consistent with other data released in recent weeks. The numbers are not suggesting an imminent crisis, and nothing that approaches the return to recession being seen in Europe. However, the decline indicates that the robust growth that started the year has faded somewhat, provoking concerns the economy will start to retreat for the third time in as many years. "If there was nothing all that dramatic to drag the economy down what can the decline be attributed to? There are clues in the CMI data," said NACM Economist Chris Kuehl, PhD.

The index of favorable factors fell from 62.5 to 60.5. Sales had the biggest change, falling to 60, a level not seen since November 2011 when it stood at 58.3. "A drop of 4.1 points is not insignificant and that is taking place at a time when the retail numbers have been adequate in the country as a whole," said Kuehl. "The slide in sales tends to coincide with what has been reported as far as durable goods orders are concerned." Favorable factors declined almost across the board, including dollar collections, which fell from 61.4 to 59.3. New credit applications also slipped from 60.4 to 58.2, but there was some good news in the amount of credit extended, which rose from 63.9 to 64.6. At first blush, it seems businesses are cautious and not requesting as much credit, but those that are have been met with a willingness to extend.

The index of unfavorable factors fell as well, from 52 to 51.6, but the drop was not quite as dramatic as with favorable factors. The biggest decline was in dollar amount of customer deductions, which dropped from 51.1 to 50.4. Other categories improved, though. Rejections of credit applications rose from 50.6 to 51.6, reinforcing the notion that creditworthy companies are still accessing credit. By and large, there was not all that much movement in unfavorable factors. "The good news is that all the readings are still above the 50 mark denoting expansion, but the bad news is that there are several factors with readings between 50 and 50.7," said Kuehl. "It is a very fragile situation and it will not take much to push these numbers into contraction territory."

The online CMI report for April 2012 contains the full commentary, complete with tables and graphs. CMI archives may also be viewed online.

Source: NACM

Credit Bidding Goes to Washington

The May issue of Business Credit features an analysis of RadLAX. For more information and insight into what legal professionals have to say about the coming ruling from the Supreme Court, be sure to look for this issue in your mail, or browse the issue online.

In addition, Warman and Borges, who contributed to the above story, will be among key speakers presenting at the 2012 Credit Congress in Grapevine, TX from June 10-13. For more information or to register, visit http://creditcongress.nacm.org/.

 Obama Executive Order Aims to Help Harmonize U.S., International Regulations

President Barack Obama signed an executive order earlier this week that seeks to promote greater international regulatory cooperation. Specifically, the order directs U.S. regulators to take the international implications of their work into account when issuing new rules.

The order was built on the tenets of another order signed by the president last year. "Executive Order 13563 of January 18, 2011 (Improving Regulation and Regulatory Review), states that our regulatory system must protect public health, welfare, safety and our environment while promoting economic growth, innovation, competitiveness and job creation," said the president in this week's order. "In an increasingly global economy, international regulatory cooperation, consistent with domestic law and prerogatives and U.S. trade policy, can be an important means of promoting the goals of Executive Order 13563."

Improving trade has been something of a lynchpin in the Obama Administration's economic efforts. Trade also happens to be one of the only policy areas where the president's positions don't run afoul of the U.S. Chamber of Commerce. In response to this most recent executive order, Sean Heather, vice president of the Chamber's Center for Global Regulatory Cooperation, issued a gushing statement firmly touting the benefits of a sound approach to regulatory harmonization.

"This landmark executive order recognizes that good regulatory policy supports good trade policy," he said. "Dialogue between U.S. regulators and their foreign counterparts can avert unnecessary divergences in regulation that become 'behind the border' barriers to commerce and hinder the ability of U.S. companies to reach the 95% of the world's consumers that live beyond our borders."

Heather noted that certain regulators have already begun to move toward this sort of international cooperation, but not systematically and not always in a well-coordinated fashion. "This executive order provides a much-needed political emphasis and sharpens the administration's focus on international regulatory cooperation," he added.

Jacob Barron, CICP, NACM staff writer

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EU Late Payment Directive Revamp Flawed

Trying to ease the concerns of companies doing business with any state-related entity in the European Union (EU), officials there remain confident that some payment safeguards will be widely in effect by 2013. However, the directive is far from air tight.

Coming on board soon to help ease fears in the commercial payment market is the implementation of an EU Late Payment Directive revamp. This is slated to affect all dealings between public authorities and private companies. The guiding tenet of the directive is to create the statutory right to interest when an invoice is 30 days past due, unless an exception has been negotiated. EU officials claim it will "harmonize" payments by forcing governments to pay for goods or services within 30 or, at worst, 60 days, in theory. Those businesses that do have to file a claim at 60 days past due can force compensation for recovery costs, and the anticipated rate of interest is expected to exceed the European Central Bank's reference rate by 8%.

In theory, it's a great way to protect the smallest and most vulnerable businesses involved in the EU economy. However, FCIB Board Member Angela Bradbury, MICM, CICP notes that "as usual," each EU member has voiced its own interpretations of the directive and plans for phasing it in.

"There are flaws in the plan," she said. "While these are now the standard terms, smaller companies are unlikely to take their blue chip customers to court and risk the business. Also, terms relating to a contract can be negotiated, so longer terms do often exist. So, while for the rank and file of business, it is a line in the sand and probably a good idea, in reality, it is not having a huge impact except in France." Bradbury added that there are some pretty significant ways to sidestep this in nations like Germany. That's not even to mention the reliability of several high-debt nations on payment promises. Frequent to disappoint in such areas, Greece jumps to mind.

Brian Shappell, CBA, NACM staff writer

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U.S. GDP Growth Slows in First Quarter, Consumer Spending Increases

The Commerce Department (DOC) reported last week that U.S. economic growth had slowed in the first quarter of 2012. Gross domestic product (GDP) increased at an annual rate of 2.2%, compared to 3.0% in the fourth quarter of 2011.

While the slower growth is bound to raise concerns about the strength of the U.S. economic recovery, many of the negative aspects of the GDP report were offset by an increase in consumer spending. Personal consumption expenditures (PCE) increased by 2.9% in the first quarter, compared with an increase of 2.1% in the fourth of last year.

With business spending, the picture was just as mixed. Real exports of goods and services increased by 5.4% in the first quarter of 2012, compared with a 2.7% increase in the prior quarter, but overall business spending fell. Nonresidential investment decreased by 2.1% in the most recent report, in contrast to a much more robust 5.2% increase at the end of last year.

Further contributing to the deceleration was a continued decline in federal spending, albeit often at a lower clip. Overall, federal spending decreased by 5.6% in the first quarter, compared to a decrease of 6.9% in the fourth of 2011. National defense decreased by 8.1%, as opposed to last year's 12.1% freefall. Non-defense spending had experienced a 4.5% increase at the end of last year, but decreased by 0.6%, in the first three months of 2012.

The DOC's Bureau of Economic Analysis, responsible for issuing the quarterly readings, stressed that this 2.2% reading was an advance estimate, based on source data that are incomplete or subject to further revision by other agencies. A second, more accurate reading for the first quarter of 2012 will be released at the end of May.

Jacob Barron, CICP, NACM staff writer

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Fitch Knocks China for Differences Between State, Private PMI

Although lackluster manufacturing statistics out of China and its top trade partners isn't necessarily reason for alarm, as noted in last week's eNews by economists Chris Kuehl, PhD and Ken Goldstein; market watchers and credit analysts remained somewhat puzzled at often contradictory data coming from the Asian powerhouse.

While the Chinese government's official Purchasing Managers Index was listed at a 13-month high in April at 53.3, it contradicts indexes, including one conducted independently by HSBC that finds the manufacturing PMI closer to 49.3 for the same period. It is the ninth straight decline noted by HSBC of private Chinese companies, and the level falls below the proverbial Mendoza line dividing growth and contraction (50). Fitch Ratings pointed out this very problem, and the issues/uncertainty it creates for investors and the credit profession, this week.

The U.S.-based ratings agency believes the divide can be chalked up to private sector companies experiencing a significant disadvantage in the area of credit availability when compared to its private sector competitors. Fitch noted the 'official' [government] PMI figure reflects positive returns from large state-owned enterprises in particular, whereas the HSBC index is almost exclusively comprised of information from public sector entities.

"The divergence of the indicators may reflect differential terms of access to credit, with the contracting HSBC index representing the tighter credit conditions for private companies, whereas the expanding official index reflects China's large state-owned entities, which enjoy support for growth and expansion and have easier access to funding," Fitch said in its statement. "This is perhaps not surprising from a credit perspective when considering a centrally directed economy trying to integrate a growing capitalist business sector."

While perhaps not a "surprise," the continued uncertainty continues to be a source of frustration among investors and credit granters.

Brian Shappell, CBA, NACM staff writer

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To view past eNews issues or to visit the NACM Archives, click here.

 

 

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