April 4, 2013
The March Credit Managers' Index (CMI) from the National Association of Credit Management (NACM) fell slightly from 54.9 to 54.2, with both favorable and unfavorable factor indexes dipping by roughly equal amounts. Some individual factors showed significant movement, but there was no clear signal from any of the factors as far as financial stress is concerned, or anything to cause much confidence either.
Sales slipped from its position of 59.2 in February to 57.4 in March. This is a fairly substantial decline of 1.8, but at 57.4, the index is as high as it was in December. "The main concern is that for the last year, the sales reading has been averaging in the low 60s, and now there seems to be a struggle to get there again," said NACM Economist Chris Kuehl. On the encouraging side, the new credit applications number rose slightly (56.7 to 56.9). "A significant desire to expand seems to exist, and businesses are starting to more aggressively pursue credit," said Kuehl. "However, serious issues remain in balancing the desire for more credit and creditworthiness."
Overall the index of favorable factors fell from 59 to 58.4. "It would be more encouraging to see that positive trend reestablish, but the drop was not too severe, and 58.4 is the lowest for this index since October of last year," said Kuehl. "It bears noting, however, that the favorable factor index was mostly at 60 or above in the last year, and those stronger readings were all taking place a year ago at this time."
There was a similar decline in the index of unfavorable factors (52.2 to 51.4), putting the current reading roughly where it has been for the last year. Volatility and variation in this index exist, but the range has been narrow: a low point of 49.8 in July 2012 to a high point of 53.1 the very next month. The variations within the index were a little more dramatic, and all but one factor fell, with three slipping under 50, the point separating contraction from expansion. "The overall conclusion that can be reached by looking at the unfavorable factor index data is that there are more companies in distress than there were a month or two earlier, and that likely reflects the consternation and confusion that has marked government inactivity the last few months," said Kuehl.
"The CMI is telling roughly the same story as other economic indicators of late. The latest durable goods order data showed an improvement if growth in the aerospace sector is taken into consideration, but not if the sales that Boeing posted last month are stripped out," said Kuehl. "Housing data has been strong, but just this month there was a slight dip in the sales of existing homes and in new home building."
"The statement made by this month's Credit Managers' Index was essentially 'steady as she goes,'" said Kuehl. "Nothing is suggesting a return to recession, but neither is there a sure sign of an imminent breakout in the manufacturing or service sectors."
The complete CMI report for March 2013 contains more commentary on the factors within both the favorable and unfavorable indices, complete with tables and graphs. CMI archives may also be viewed on NACM's website.
- National Association of Credit Management
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The preliminary approval of an antitrust settlement against Visa and MasterCard meant that merchants could begin taking steps to surcharge their credit card-using customers for the cost of what it takes to process such a payment. While the application of the actual surcharge has left many confused, others have merely yawned and gone about their business, content to eat the cost of credit card processing for the foreseeable future.
That's the impression left by NACM's March 2013 survey, at least. When asked "in the wake of Visa and MasterCard allowing merchants to pass down their credit card processing fees, has your company taken steps to begin surcharging customers that pay by credit card?" an overwhelming 73% of participants said "no." Only 10% said they had begun working toward surcharging their customers, while 12% said that their companies didn't accept credit cards for payment.
Many respondents noted that while their companies did accept credit cards, it only made up a small portion of their business, often making the cost of actually implementing a surcharging program prohibitively high. "Approximately 1% of our sales are paid with a credit card," said one participant. "A surcharge would not add up to much."
Others cited competitive concerns as the reason why their companies were avoiding the surcharge. No one wants to be the only company in an industry that surcharges customers for using a credit card. "Price sensitivity is a concern," said one respondent.
Other reasons were considerably more complex, combining issues of business size, customer base, industry standards and processing practices. "We are a relatively small company with small operating margins and have discouraged most repeat customers from paying with credit cards," said one participant. "We do accept credit cards, mainly for prepaid customers or when it appears that accepting a credit card is the only way we will receive payment. Because of the small volume, it is a very manual process."
One respondent who works for a utility provider noted that the unique regulatory circumstances in their industry make surcharging a non-starter, at least for now. "To implement a surcharge for credit card payments on the customer would be a challenge with the public utility commissions and a hurdle which we would not want to attempt at this time," they said. "Perhaps down the road when another rate case is before the commissions..."
Still, some avoided the surcharge simply because the actual terms of the settlement remained a mystery to them, and left some wondering whether the fee can be charged only up front, or for antecedent debt. "I would love to be able to charge a service fee to our customers who use American Express, Visa and MasterCard to pay their bills 30, 60 [or] 90 days late," it was noted. "I did not think it was clear from the settlement that we could."
- Jacob Barron, CICP, NACM staff writer
Best Practices for Rolling Out your Credit Card Surcharge ProgramJoin Scott Blakeley, Esq. and Ronald Clifford, Esq. of Blakeley & Blakeley LLP on April 8 to hear how credit teams can create a potential sales channel due to the recent MasterCard and Visa class action settlement when they discuss:
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After reviewing last week's arguments from Stockton, CA officials and creditor representatives, a bankruptcy judge has ruled that the struggling city is eligible to file for Chapter 9 bankruptcy. However, the judge did not make an ironclad ruling on some other points of contention important to other communities considering the same path, or bondholders. Either way, it's a temporary win for municipalities in California and other states where Chapter 9 is allowable after certain thresholds are established, especially where eligibility comes into play, said one expert bankruptcy attorney closely following the case.
U.S. Bankruptcy Judge Christopher Klein ruled Stockton did meet the threshold to officially enter into municipal bankruptcy, even after the threshold was elevated by a 2011 California state law to try to slow potential filings. After initially releasing little explanation on the ruling, it eventually came out that the key piece to the decision was that Stockton is, in fact, insolvent and that it went through the good-faith negotiation processes mandated by the 2011 law. While he didn't dismiss the bondholders' problem with creditors taking a haircut while Stockton continued to make full contributions to the state pension program (CalPERS), Klein did determine that an eligibility proceeding wasn't the right time for such arguments to be made.
"The court found the failure of mediation wasn't the fault of Stockton, and that they satisfied the requirements for a Chapter 9," said Bruce Nathan, Esq., partner of Lowenstein Sandler LLP. "But don't think that means the judge will just reject the bondholders' arguments and not make CalPERS pay anything or take a haircut. He basically said, 'I'm not going to dismiss this case, but that's not an issue for eligibility; that's an issue for the plan.'" Nathan added that the ruling is a win for municipalities, at least on the eligibility issue, but that this is "not the end, but a beginning" for both Stockton and the greater issue of Chapter 9.
Arguments wrapped last week in the case, which is one of the first to include potential plans to short bondholders, creditors and other insurers instead of cutting services or payments to retiree and pension benefits programs. Representatives for the city officially filed for Chapter 9 protection in federal court in Sacramento last June. Negotiations since that time, mandated by a then-new California state law requiring attempts to work out solutions without court judgments or hastily-considered filings, failed.
Stockton is among many U.S. cities, including several others in California, struggling to get out of crushing debt wrought by factors including expensive union contracts, pension payments and tax base shrinkage caused by the real estate collapse, for which Stockton once boasted the nation's second-highest foreclosure rate. The case has been closely watched not only in California, but also in states where Chapter 9s are permitted, as Stockton's case could be used as a template for other municipalities considering the bankruptcy route.
- Brian Shappell, CBA, NACM staff writer
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Those perennially looking for an economic and business silver lining in the European Union found little to grab onto this week, as both manufacturing and employment statistics reached some dark depths, down to record lows in some cases.
The big news on April 3 was word that unemployment rates officially hit a modern record of 12% among EU nations in February. Granted, newly revised data from January show it was actually at that level the previous month as well, but preliminary numbers were optimistic, if one could even call it that at such a level. Troublingly, these statistics don't take into account the Cyprus banking and bailout crisis that shook the confidence of the entire EU bloc, if not the world. That comes next month.
Greece and Spain registered the highest unemployment rates, both at just over 26%, with more than 55% of each nation's under-25 population out of work. As such, analysts are starting to throw around the phrase "lost generation" to describe the legions of young people who literally can't find any type of employment. Other member states exceeding the overall 12% unemployment rate for the EU, but still well under 20%, were Portugal, Latvia, Ireland, Cyprus and Bulgaria. Not surprisingly, Germany posted the lowest unemployment rate (5.4%), with the Netherlands close behind (6.2%).
Meanwhile, the JPMorgan/Markit Purchasing Managers' Index (PMI) brought bad news earlier in the week. While the index found countries like China, Hungary, Indonesia, South Korea and Taiwan expanding at sizable rates, there was no such growth to speak of out of the bulk of the EU. Among manufacturing economies statistically considered to be "contracting slowly" are Germany and Ireland. And that's the good news. Among developed nations seeing worsening levels of contraction in the latest PMI are Italy, Poland, Spain and the United Kingdom. Greece, perhaps obviously, is also on the list of those receding the fastest. Moreover, none of those five are expected to accomplish anything resembling a quick turnaround.
- Brian Shappell, CBA, NACM staff writer
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West Africa joined an ever-growing list of regions and economic blocs that the White House is targeting for new trade agreements.
Acting U.S. Trade Representative Demetrios Marantis announced last week that the Obama Administration was exploring the possibility of a Trade and Investment Framework Agreement (TIFA) with the Economic Community of West African States (ECOWAS), the region's economic bloc consisting of 15 member states including Nigeria, Ghana and Ivory Coast. "A TIFA with ECOWAS can significantly contribute to economic growth and increased international competitiveness on both sides of the Atlantic," said Marantis.
Earlier in the week President Barack Obama met with four African heads of state, including those from ECOWAS member states Sierra Leone, Senegal and Cape Verde. He discussed the possibility of concluding a TIFA and taking other steps to expand the United States' trade relationship with the region, which has historically been a market dominated by Europe and more recently by China. A concluded, successful TIFA would open up export opportunities for U.S. companies hoping to enter the region, and ideally further integrate the U.S. into Africa's commodity wealth and ongoing economic development.
The U.S. currently already has TIFAs with four other African regional economic blocs, namely the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), the West African Economic and Monetary Union (WAEMU/UEMOA) and the South African Customs Union (SACU). These organizations have minimized trade and regulatory hurdles among member nations, allowing companies to sell to the region, rather than having to worry about differences from country to country, and making Africa overall a much more attractive export market than in years prior.
ECOWAS recorded GDP growth of 6.9% in 2012, more than double the global rate and an increase from the 5.9% rate of growth recorded in 2011. According to a recent economic forecast from Dun & Bradstreet, Sub-Saharan Africa should continue to see growth above 5% for the foreseeable future, driven primarily by commodities, and Sierra Leone and Senegal were expected to see noteworthy improvement in the coming four years.
- Jacob Barron, CICP, NACM staff writer
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