Index Finds Major Economies Comparatively Low on Corruption, But Not Leading Way

The usual suspects, mostly nations in Northern Europe, demonstrated the lowest levels of corruption in an annual Transparency International study released this month, while the United States held relatively stable among the 20 best-performing nations.

The US placed 17—alongside Barbados, Hong Kong and Ireland—with a score of 74 in the 2014 Corruption Perceptions Index, which measures the perceived levels of public sector corruption for 175 countries/territories worldwide. The score advanced one point from 2013’s score, which marked a two-position improvement in the rankings. No country earned a perfect score and 69% scored below 50 on a scale from 0 for highly corrupt to 100 for very clean.

The six best-performing countries were Denmark (92), New Zealand (91), Finland (89), Sweden (87), Norway (86) and Switzerland (86). The top three maintained their positions from last year. North Korea and Somalia finished at the bottom, both scoring an 8.

Regionally, the Americas had an average score of 45 with Canada placing first with 81 and Haiti and Venezuela last, each with 19. The EU and Western Europe averaged 66 with Denmark in the lead and Greece, Italy and Romania dubiously scoring worst with 43 each. Eastern Europe and Central Asia averaged 33 with Georgia scoring a best of 52 and Turkmenistan at the bottom with 17. The Middle East and North Africa averaged 38 with the United Arab Emirates at the top with 70 and Sudan at the bottom. The Asia Pacific’s average score was 43 with aforementioned New Zealand and North Korea representing the respective high and low scores. The Sub-Saharan Africa had an average score of 33 with Botswana at the top with 63 and Somalia at the bottom.

Of the G20 countries, an international forum for the governments and central bank governors from 20 major economies, 58 percent scored below 50. Overall, global performance averaged at 43 and G20 at 54. (For the full list of results—with comparisons to 2013 and 2012, visit www.transparency.org/cpi2014/results.)

- Diana Mota, NACM staff writer

Spending Bill Passes House, Future Looks Complicated

For the last several years, there has been a temptation on the part of US lawmakers to hold the overall budget process hostage to other political issues. Republicans famously did this a couple of years ago and the entire federal government came to a screeching halt as the political battle over the size of the budget was fought.

This backfired temporarily, as it seems that people may support budget discipline in theory, but not when it starts to really hit them personally. Since that debacle, there has been little support for taking budget talks to the brink. It was assumed that the process this year would be predictable with both parties making their points but supporting a compromise in the end. That eventually happened, but it came by a far narrower vote than had been expected.

The House vote was very close, with 139 Democrats voting against it and only 57 for it. It now moves to the Senate, where its fate is not at all certain given the control Democrats still have there. If there is a government shutdown this time, the blame will fall on the Democrats. That is not something the White House wants, nor is it the position that most Democrats want to be in.

The bigger issue is that there are now essentially four political parties in the US and two of them are very aggressive. The Republicans have their Tea Party wing and the traditional wing though, in the last set of primary elections, the traditionalists won many of the contests. The Democrats had been more unified, but that seems to end when the last election ended so poorly for them. Now there is an aggressive left wing that is pushing the traditionalists in the Democratic Party. With neither party able to project much in the way of unity, this setting up a very contentious couple of years and could usher in even more political paralysis than existed before.

- Chris Kuehl, PhD, NACM economist

Global PMI Growth Pace Slows



Continued economic output strength in November for nations including the United States, United Kingdom and Ireland was not enough to counteract increasing struggles on the part of some key European Union members and emerging economies.

The JPMorgan Global All-Industry Output Index, which is produced in conjunction with Markit Economics to analyze manufacturing- and service-sector Purchasing Managers’ Index data, slipped to 53.2 from October’s 53.5. Though the overall index and its six key subcategories (output, new orders, input prices, output charges, employment, backlogs) all remained firmly above the 50 level that separates expansion from contraction, November’s performance marked a seven-month low.

“November saw global economic growth continue its gradual slowdown from the highs of the middle of the year,” said David Hensley, director of global economics coordination at JPMorgan. “The results were again reinforced by slower inflows of incoming new business.” Hensley added that little possibility existed for a fall into contraction territory in December, but that fourth quarter growth would almost surely be “cooler” than previous quarters.

By industry, technology equipment was the top-ranked industry and the biggest one-month gainer, according to Markit. Tourism and travel posted the second-fastest growth.  Commercial and professional services, the previous leader, remained in the top five despite an easing pace of growth in November. Construction materials and media were the only industries to report a PMI in contraction territory, though declines in industries tied to automotive production and parts as well as metals and mining put each dangerously close to 50, Markit statistics indicate.

Growth in the US remained strong, but problems in other parts of the world seemed to act as a drag on US production potential more in November than most of 2014. The Markit US Manufacturing PMI declined to 54.8, its lowest point since January, and the Markit US Services Business Activity Index fell to 56.2, the worst growth pace since April. Export orders fell by the most significant pace since June 2013. It is likely no coincidence that manufacturing PMI statistics were especially problematic in the EU—Germany sank below 50 to a 17-month low, France’s contraction accelerated and Italy remained stagnant in negative territory. Additionally, composite PMI readings dropped all of the BRICs (Brazil, Russia, India, China) except India, and the culprit was largely the manufacturing sector. 

- Brian Shappell, CBA, CICP

503(b)(9) Survives in ABI Bankruptcy Reform Proposal

The American Bankruptcy Institute (ABI) Commission on the Reform of Chapter 11 has unveiled a lengthy list of recommendations it will present to the US Congress that include attempting to streamline the process for small businesses that have been adverse to seeking Chapter 11 as an insolvency remedy and preserving trade-critical 503(b)(9) priority claim rights for goods delivered within 20 days of a filing. The recommendations follow a lengthy series of ABI field hearings, including one hosted by NACM at the 117th Credit Congress in May 2013.

The ABI Commission has been studying what potential changes to the Bankruptcy Code would help Chapter 11 reduce barriers to entry, which it argued especially hinders small and medium-sized enterprises from use, and generally improve the process. Commission members, in previewing today’s official release of the recommendations during an event on Saturday, said they believe the recommendations could do just that, and notably provide more alternatives and flexibility to make bankruptcy work as a “safe harbor.”

Of significant importance to trade creditors was the issue of 503(b)(9). In fact, NACM members were the first to testify during ABI Commission hearings about the importance of preserving 503(b)(9), which was once thought to be a possible target for proposed elimination by the ABI Commission. It announced that 503(b)(9) would not be eliminated as part of approximately 240 recommendations ABI will make to US lawmakers in 2015.

Section 503(b)(9) was included in 2005 changes to Chapter 11 and grants an administrative priority to any goods seller who provided its products to a debtor within 20 days of their bankruptcy filing. Trade creditors, including a panel of exemplary NACM members that testified at the ABI hearing held at Credit Congress in Las Vegas, have long argued that the statute's protections make it easier for businesses to extend credit and do business with struggling customers. Notably, 503(b)(9) only applies to providers of goods, but not services. 

Commission members noted the report also includes no recommendations of mandatory surcharging of secured creditors or the elimination of credit bidding, creditors' committees or preferences.  They also reiterated the presentation of the report is not the Commission's final word on bankruptcy reform--they expect continued dialogue on the proposed recommendations from stakeholders in the coming weeks and months.

- Brian Shappell, CBA, CICP, NACM staff writer

For more information on the ABI bankruptcy reform recommendations, please view the week’s edition of eNews on Thursday afternoon and return here to the NACM blog in the days after. Bruce Nathan, Esq., a partner with Lowenstein Sandler LLP, will also serve as presenter of an NACM teleconference on the matter, “The ABI Bankruptcy Reform Commission Speaks!,” on Wednesday. For more information or to register, click here.

November Bankruptcies Plummet

Overall bankruptcies filed in November dropped dramatically, with Chapter 11 filings showing a far bigger percentage drop than other categories, according to monthly statistics released by Epiq Systems Inc.

Commercial Chapter 11 filings fell from 487 in November 2013 to 296 last month, a drop that far outsized, by percentage, the 16% slide for overall bankruptcy filings for the same period, Epiq statistics indicate.The decrease from October's statistics to those of November was 39%, Epiq noted. A total of 4,817 Chapter 11 business filings have been reported so far in 2014, down 22% for the same period last year.

For perspective, "the number of Chapter 11 commercial bankruptcy filings for the current month represents a decline of about 69% when compared to the recent historical high-water mark of 947 filings, which occurred in 2009,” said Lorenzo Mendizabal, managing director at Epiq Systems.

- Brian Shappell, CBA, CICP, NACM staff writer

Construction Spending Rebounds despite Wobbly Home Price Growth

Better news awaited builders and their suppliers this week than last, as construction spending rose to its best level since May.

Construction spending in October tracked at a seasonally adjusted rate of $971 billion, up 1.1% from September’s disappointing $960.3 billion tally, according to the US Department of Commerce.  Spending through 10 months this year exceeded that of the same period in 2013 by 5.8%. School and single-family housing construction fueled the gains, while spending for commercial projects was particularly muted, the data suggest.

The positive shift followed by one week the woeful view illustrated in the S&P/Case-Shiller Home Price Indices. Although home prices increased in all 20 of the largest US markets on an annual basis, the pace of the gains continued a troubling downward trend. Nnine of the markets in the 20-City Composite showed declines on a monthly basis.

David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indicies, did mention that housing and construction statistics have been mixed, citing improved monthly housing starts, existing home sales and builders’ sentiment statistics. Still, Blitzer is optimistic heading into the new year. “With the economy looking better than a year ago, the housing outlook for 2015 is stable to slightly better.”

- Brian Shappell, CBA, CICP, NACM staff writer

NACM's Credit Manager Index for November Slips

Data this month sent the Credit Managers’ Index (CMI) from the National Association of Credit Management (NACM), which is now available, back to the type of doldrums recorded in September. Perhaps the biggest takeaway is that the disappointing performance could indicate that the higher readings in October were more of an anomaly than a predictor of the end of 2014 and beginning of 2015.

“This is the least desired outcome,” said NACM Economist Chris Kuehl, PhD. “The main question at the end of last month was whether the readings in September were anomalous or were October’s out of sync. It now appears that the October numbers were the odd ones. That changes the expectations for the rest of the year. There would not be quite the concern were it not for the fact that other economic data tends to support the notion that growth is stalling and worries that seemed to have faded earlier in the quarter have started to resurface.”

November’s CMI will show sales statistics stand as the most variable factor. Virtually every category under the favorable factors designation showed noticeable movement, except for the amount of credit extended.

“This is interesting given the drop in new credit applications, as it suggests that fewer companies were getting credit but those that were receiving credit were getting more than in the past,” Kuehl said. Larger companies appear to be expanding and that coincides with the data coming from the capital expenditure numbers.

Kuehl noted that the breakdown in the unfavorable factors “shows some serious problems developing.” Only one factor, disputes, showed an improvements and there was a dramatic fall in the area of rejection of credit applications.  “A sudden tightening of credit is not a good sign,” Kuehl said.

-NACM staff


For a full breakdown of the manufacturing and service sector data and graphics, view the complete November 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.


Late Business Payments Rising Again, Foreshadow GDP Growth Hit

Payment habits for US businesses worsened in the third quarter, but the performance differed markedly between various industries, according to a report unveiled this week by Euler Hermes.

Global trade credit insurer Euler Hermes released its latest “Economic Insight” showing a 2% increase in the average dollar amount of past due payments to US businesses through the first three quarters of 2014, as compared to the same period one year prior. Although Euler noted its Severity Index, that tracks long-run averages of payment behavior, remained in positive territory overall, the latest data suggested a drag on the horizon for overall economic growth in 2014’s final quarter.

“While the dollar amount of past due payments has improved by 60% since 2008, the current figures suggest that we can expect to see slower GDP growth for the balance of the year,” said Dan North, chief economist for Euler Hermes North America. “We have found a strong correlation between payment behavior and GDP, including an increase in past due payments in 2007, as the recession approached and a decrease before the recovery began in 2009.”

The best performing industries according to Euler’s Receivables at Risk (RAR) metric of late have been the automotive and energy industries, though the latter is often subject to greater unpredictability than most other segments. Both are expected to post positive fourth quarter results. Retail, to a lesser extent, also looked strong heading into the fourth quarter, though that is almost a given considering the expected annual holiday shopping boost.

Those with the worst RAR rating changes between this year’s second and third quarters were the commodities and electronics industries. Euler analysts characterized the commodities payment behavior change (a 71% decrease in performance) as particularly worrisome because of the unexpected and low frequency of delinquencies coupled with the high value of the losses. The industry encountered problems such as over-capacity and weakening global demand, which are unlikely to improve drastically before 2015. Reasons behind the slowdown in electronics payment behavior proved difficult to identify, Euler admitted. The agriculture and chemical industries also skewed weaker in predictions for the fourth quarter, but not nearly to the disappointing levels of those previously mentioned.

- Brian Shappell, CBA, CICP, NACM staff writer

Japan Slides Back into Recession

The Japanese economy has now contracted for two consecutive quarters and that is the classic definition of a recession. This should not come as a shock, but there is still apparent consternation in the planning rooms.

For many observers this slide seemed inevitable the moment the decision was made to push the national sales tax from 5% to 8%. The commentary at the time of the tax hike was that this looked like trying to floor the accelerator while jamming one’s foot on the brake. At the same time that people were being asked to spend Japan out of the doldrums as part of “Abenomics,” they were being smacked with higher sales taxes. One has to ask what the government thought would happen.

There was a rush to buy things prior to the arrival of the tax at the start of the year and, after the sales tax hike went into effect, that spending stopped almost entirely. The impact was worsened by the promise of another tax hike later in the year.

The tax was expected to be a minor thing. What policy makers seem to consistently forget is the impact on the psychology of the consumer. They look at an item and see the price and the retailer then shows them the price with tax, which adds quite a bit. The extra fee reduces desire, especially if the tax is unrelated to the quality of the product. Retailers have been jolted by the tax and had been pleading with officials not to add the next tax, to no avail.

- Armada Corporate Intelligence

Industries to Watch: Defense Coming Around Amid Turmoil

Less than two years ago, product and service providers in the defense industry were facing headwinds that looked to present huge obstacles to growth, or even continued solvency, for some companies. That seems to have changed pretty dramatically, as tensions in the Middle East and Eastern Europe appear unlikely to fade or even remain at current levels into 2015. Thus, like aerospace earlier this fall, the changed outlook on defense has landed the industry on NACM’s Industries to Watch list for positive reasons.

Z-Score bankruptcy prediction model creator Ed Altman, the Max L. Heine Professor of Finance at the New York University (NYU) Stern School of Business and director of research in credit and debt markets at the NYU Salomon Center for the Study of Financial Institutions, told NACM that defense contractors and their suppliers have not been affected as much as he predicted in a May 2013 edition of Industries to Watch. Then, the industry and suppliers downstream were threatened by the government spending sequester and overreaction from investors who saw government cuts coming for other reasons like military troop withdrawals. But with the Islamic State waging war in Iraq and Syria, instability remaining in other Middle Eastern nations like Egypt and the ongoing Ukraine-Russia border standoff, buzz words like “drawing down” are no longer bandied about as much as last year. 

“There are always new places in the world where wars break out that we (United States) are involved with,” said Altman. “We’re bringing troops home at the same time we are escalating other activities. So, defense has not suffered much even with last year’s cuts in Congress.”

Trade creditors were concerned, and with good reason, that mid-market defense players would have to lean much more heavily on B2B credit. That and potential insolvency isn’t as big an issue in the current landscape, according to Altman. Also less likely is potential for a spike in mergers within the defense contracting industry, which would have been apparent if a number of mid-market companies began to exhaust their cash positions. While due diligence continues to rule the day for granting credit to those tied to defense activity and spending, there is reason for credit managers to be more at ease heading into 2015 than there was in mid-2013.

- Brian Shappell, CBA, CICP, NACM staff writer