CMI for July to Reflect Improved Confidence

The Credit Managers’ Index (CMI) from the National Association of Credit Management (NACM) improved to 56.8 in July on some returned strength within the readings for both favorable and unfavorable factor indices.

“The overall sense is that real progress in economic recovery is being made and the future looks brighter,” said NACM Economist Chris Kuehl, PhD about the July CMI report. Significant readings within the favorable factors, notably sales and new credit applications, seem to promise better days ahead. The unfavorable factor index details are also instructive, though not as dramatic. The good news is that all of the factors that had fallen into contraction (below a level of 50) improved in the July CMI.

A growing sense of confidence in the progress of the economy exists at present, according to Kuehl, although there are still many who see “dark clouds” in the future. “The latest data releases all seem to point toward the kind of rebound expected by analysts at the start of the year,” said Kuehl. “The CMI has joined this parade with a set of readings that mark highs not seen in over a year in some cases. Given that the CMI is often predictive, it would appear that economic conditions for the coming months will continue tracking in a positive direction.”

As for those dark clouds: “Not to rain on the parade, these numbers also looked good at the start of the year, and it has taken until mid-summer to regain that momentum,” he noted. “The rebound in exports played a major role in getting the US back to growth, but the caution is that many of those importing nations are still not in very good economic shape.”

- NACM


For a full breakdown of the manufacturing and service sector data and graphics, view the complete June 2014 report at http://web.nacm.org/CMI/PDF/CMIcurrent.pdf. CMI archives may also be viewed on NACM’s website at http://web.nacm.org/cmi/cmi.asp. An extended version of this story will also appear in forthcoming edition of NACM’s eNews, available weekly during Thursdays' late- afternoon hours.

Fed Stays the Course Again

Citing “sufficient underlying strength in the broader economy,” the Federal Reserve stayed the course on its assets purchase program wind-down and the extension of historically low rates that is unlikely to change in the next year.

The Fed’s Federal Open Market Commission emerged from its latest economic policy meeting on Wednesday afternoon with the announcement that it would continue adding to the amount of its agency mortgage-backed securities and longer-term Treasury securities holdings. It will also continue the policy of lowering the amount of agency mortgage-backed securities (to $10 billion per month) and longer-term Treasury securities (to $15 billion) by $5 billion each, as stimulus efforts appear not as necessary as they were for recovery earlier in the decade.

“The committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the committee's dual mandate,” the Fed statement noted.

The FOMC also continued to its self-described “highly accommodative stance” on monetary policy, keeping the target for the federal funds rate at a range between 0% to ¼%. The statement reminded progress in two areas – maximum employment and 2% inflation – will largely determine movement on rates, but also reiterated that even after those two categories fall into line "economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee views as normal in the longer run.”

Only one voting member, Charles I. Plosser, voted against the actions, voicing that the guidance on the rates poorly reflected the level of actual economic progress that has been made in recent months.

- Brian Shappell, CBA, CICP, NACM staff writer

FED Electronic Payments Report Now Public

A final version of a Federal Reserve report on the future of traditional and electronic payments in the United States, of which the preliminary findings were debuted publicly at the 118th Credit Congress in Orlando last month, is now available to the public.

The 2013 Federal Reserve Payment Study Detailed Report dropped Thursday. Among the findings in the report, spearheaded by the Fed’s Financial Services Division, were that businesses continue to use wire transfers at a high rate (287.5 billion transaction worth more than $1 trillion in 2012 alone), the desire for mobile payment options is increasingly quickly even in B2B circles and check-writing has seen a massive decrease when the transaction is a considered a smaller than average (for the payee) amount. At Credit Congress and in an interview with NACM’s Business Credit Magazine for the July/August issue, Dan Gonzalez, vice president of industry engagement and awareness for the Federal Reserve Bank of Chicago, outlined a number of other B2B specific findings in the report. They included that businesses were more than twice as likely to be willing to spend more money for payment speed improvements than consumers, won’t use a payment method unless it is widely accepted, would rather share an email address or a phone number to make and receive payments to avoid divulging sensitive bank account information to the payee and fear fraud tactics more now than ever before.

The report, available at  http://www.frbservices.org/communications/payment_system_research.html,  provides detailed information about the summary findings from research done in conjunction with several organizations, including NACM (an active member of the Federal Reserve Bank of Minnesota-led Remittance Coalition), which hosted a fall teleconference and Q&A on the topic.

"The 2013 Federal Reserve Payments Study collected a broad cross-section of information related to complex consumer and business payments use, and the overview contained in today’s report offers a more complete picture of how the information can be used to better understand developments in the payments system,” said Jim McKee, senior vice president of the Federal Reserve Bank of Atlanta, this week. “The industry can use this data to continue to improve the US payments system."

Research on the payments effort has been described as “ongoing,” and the issue of fraud in payments, especially electronic, appears to be the paramount area of focus, going forward. 

- Brian Shappell, CBA, CICP, NACM staff writer

Please view the latest edition of Business Credit by clicking here for more on Gonzalez’s Credit Congress appearance. And remember, the magazine is now available in Apple/iPad-compatible formats at the NACM website (www.nacm.org) … all you need is your NACM member log in information.



Study: US Biggest Story, Worldwide, in Gas Market Outlook

One of the primary takeaways in an international firm’s new study on gas markets is that the US shale gas “revolution” is nothing short of a phenomenon and should continue to be a force through most of the decade.

“Gas Market Outlook: July 2014” is Atradius’ first analysis of the topic since last summer, and its view on the United States as a gas player for at least the medium term is bullish, to say the least. Atradius gushed at the US’s favorable technical, financial and entrepreneurial circumstances, noting that a convergence of such factors has led to a 50% reduction in gas imports on a boom specifically in shale gas:

“We will see that the share of gas in the US energy mix has risen significantly, at the expense of oil and coal. This highlights that the US gas market has fundamentally changed…These developments are likely to last into 2018, as gas prices are expected to recover with the economic upswing, ongoing consumption growth in the power sector and environmental requirements driving more gas-fired power plants. The US will become gas self-sufficient.”

The rosy forecast is not without some caution to continue beyond late portions of this decade. Much of that could swing on the tastes of lawmakers and voters at large.

- Brian Shappell, CBA, CICP, NACM staff writer
See the extended version of this story in the upcoming edition of eNews, available late Thursday afternoon via e-mail and at www.nacm.org. 

Debt Levels Soar in China

The growth in China has been largely sustained with debt. This is not all that unusual for emerging markets, but the levels in China are excessive by any measure.

Per the latest statistics, the debt level is now 251% of the nation’s GDP, or roughly 250% of the debt level in the US or even a long-struggling Europe. The leaders in China has been worrying about this debt level for years but, like most others, it has found no simple solution. If they take steps to close off access to the debt and engage in a massive austerity effort, the economy will stop growing. This presents the Chinese with a hard landing that could result in millions of lay-offs and the shuttering of thousands of companies. The government already finds it hard to contend with the demands of a 1.4 billion-strong population with growth that tracking between 7% and 9%. A sudden loss of credit availability drops that growth rate to perhaps as low as 3% --  that would be a crisis.

The Bank of China has tried to control debt with hikes in the interest rate, but this has had limited impact. The real challenge is that the hard-to-control shadow financial community remains very active. The foreign investor is also very active and continues to pour money into the country despite the fact that some form of implosion seems to many to be potentially unavoidable. There is increasing believe that China is close to where the US was in 2008

- Chris Kuehl, PhD, Armada Corporate Intelligence

Lawyers Split on "Chapter 14" Approach to Winding Down Too-Big-to-Fail Financial Institutions

Respondents to a recent Quick Poll conducted by the American Bankruptcy Institute (ABI) were divided over whether or not lawmakers should create a new Chapter of the Bankruptcy Code to reorganize too-big-to-fail financial institutions. An even 50% of respondents (24% "strongly" and "26% "somewhat) believed that a new Chapter 14 should be created for such institutions, while 42% (33% "strongly" and 9% "somewhat") disagreed. The remaining 8% didn't know or had no opinion on the matter.

Congress has recently wrestled with establishing a new means to unwind systemically-important financial institutions (SIFIs) that lies beyond the reach of federal regulators, or at least gives the institution itself the legal tools it would need to properly reorganize on its own accord. The goal of any effort to create a mechanism to safely liquidate struggling SIFIs would be to maximize value while minimizing the impact on the American economy and on American taxpayers, but how precisely to achieve these goals is the subject of a great deal of debate in the legislature, and in legal circles.

The debate centers around Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which created an "orderly liquidation authority" that would, in the instance of a SIFI's imminent failure, provide a process outside of bankruptcy court for quickly and efficiently liquidating the entity in question. As written, Title II would have the Federal Deposit Insurance Corporation (FDIC) become the SIFI's appointed receiver, carrying out the liquidation of the company and winding it down quickly so as to minimize the risk of major financial disruption.

In contrast, a proposal introduced last year in the Senate, S. 1861, would repeal Title II and replace it with the aforementioned Chapter 14, excluding federal regulators altogether by creating a way for these institutions to reorganize within the court system. The bill would also explicitly ban government bailouts in the form of a credit support facility.

While respondents to ABI's poll were split on this policy option, a competing proposal was recently discussed in the House Judiciary Committee, seeking to bridge the gap between the federal government's involvement and the importance of judicial know-how in the delicate art of quickly reorganizing a complex financial institution. Learn more about this proposal in today's edition of NACM's eNews.

- Jacob Barron, CICP, NACM staff writer

Atradius: ‘Panic Over, Vulnerabilities Remain’ in Europe

A new study by Atradius Economic Research, titled “Is the Euro Crisis Over?,” finds reasons to support a newfound confidence in a continuing European Union rebound from a harrowing lack of growth in recent years, but also sees reasons to keep the champagne bottles corked for the foreseeable future.

Atradius analysts found that the austerity measures, structural and institutional reforms in high-debt nations as well as better supervision in the banking sector have all contributed to a return of positive momentum and growth in many countries where it once looked like there was no light at the end of the tunnel. “European politicians are right to point out that the stress and imminent crisis has faded,” the report argued. “The existence of the euro is no longer questioned.”

The dangers of a slip backward, however, are ongoing. Atradius noted the debt problem, while better than earlier this decade and late last, has yet to be properly resolved. The debt-to-economic-output ratio still exceeds 100% in Ireland, Portugal, Belgium, Italy and Greece. Unemployment also remains at record levels in multiple Southern European nations. In addition, even though the years of sacrifice and positive reports about the economic situation are apparent, other reforms are still needed, but the political will to make tough choices is fading .

“The institutional framework remains insufficient and reform efforts are hindered by complacency and reform fatigue…this leaves the euro area vulnerable to a new crisis in the future.”

- Brian Shappell, CBA, CICP, NACM staff writer

eNews Story Updates: Spanish Tech Bankruptcy Made Official, Another Gaming Shutdown

Two high profile stories in the latest edition of eNews saw some significant developments this week. As noted in “Spanish Scandal Highlights Risk of Overrelying on Financials," Gowex, a provider of Internet hotspots internationally, was ready to file for bankruptcy. That filing became official Monday and is being handled by the law firm Velez & Urbina. The insolvency comes in the wake of an admission by its chairman that financials for the Spanish company had been falsified for roughly four years. The Gowex scandal started when a group of high-level investors, operating as Gotham City Research LLC, outed the company, challenging its financials and abilities to generate the profits it claimed. Gotham City, while controversial, read between the lines, in essence.

Meanwhile, oversupply in the US gaming industry, especially in the northern half of the Eastern Seaboard, was again documented in “Industries to Watch: More Gaming Troubles.” Since then, Trump Plaza, a centrally located gaming operation on Atlantic City’s famed Boardwalk for decades, shockingly announced it would be closing permanently this fall.

Sources within the industry previously noted in NACM publications that at least three to five casinos would need to close in the US Northeast by 2015, primarily in Atlantic City, NJ, for the existing properties to have a realistic chance of success. Since those assertions, voiced in early 2013:
  • Atlantic City’s Revel entered bankruptcy twice and was still scrambling for a buyer this July, with the possibility of a full closure looming less than two years after its glitzy opening.
  • Revel's neighbor, Showboat, announced it will cease operations at the end of August so that its parent company (Caesar’s Entertainment Group) can concentrate on its three other properties in the city.
  • The closure of Atlantic Club, a former Hilton-owned gaming operation located less than a mile away from the two previously mentioned casinos, was completed this spring.

- Brian Shappell, CBA, CICP, NACM staff writer

By the Numbers: Big Week of Official Government Stats Ahead Throughout Globe


This week is slated to be a pretty rich in the way of data. The central banks of Japan and Australia will meet and both are under some pressure to do something to bolster their economies despite the fact that both central banks have largely spent their available ammunition. This is also the week that China releases its second quarter numbers, which are expected to be close to the target growth number of 7.3%. If there is a significant difference between what was expected and what is released, there will be some consternation. The most likely surprise would be that China is not growing as fast as expected, and that will upset those who have been counting on the Chinese to return to a more robust position.

There will also be data from the United States, including the latest retail numbers. These will be an opportunity to see if any of the newfound consumer confidence is translating into buying behavior. The housing construction starts numbers will be out as well and could signal whether that sector is continuing to slide or staging a rebound upon which the overall economy might be able to build.
There will also be a return to normal levels of productivity around the world now that the World Cup soccer tournament has concluded. The exception may be in Germany, where the celebrations of its victory appear to be in full swing.

- Chris Kuehl, PhD, Armada Corporate Intelligence

President Launches ‘SupplierPay’ to Speed Payments to Small Business

The Obama Administration Friday announced the launch of a new partnership aimed at speeding business-to-business payments to small companies.

Dubbed SupplierPay, the initiative is being spearheaded by the Obama White House, US Small Business Administration and 26 notable corporations, including some of the biggest brands in the globe. The purported aim is to improve the supply and payment chain to spur healthier companies that are more likely to invest in new opportunities, equipment and staff. The companies signed on to SupplierPay – which includes Apple, AT&T, Toyota, Lockheed Martin and Johnson & Johnson – have pledged to pay smaller suppliers faster and word to share best practices.

SupplierPay builds on the existing Federal Government’s QuickPay initiative, which President Obama launched in 2011. That program mandated that federal agencies had to make payments to small business contractors more quickly with the goal of paying within 15 days.  A White House press release noted:

“As a result of QuickPay, we have already seen well over $1 billion in cost savings for small businesses since 2011, leading to greater investment and job creation. SupplierPay is the private sector’s equivalent, where companies have committed to pay small suppliers faster or help them get access to lower cost capital.”

- Brian Shappell, CBA, CICP, NACM staff writer