Sept. Credit Managers’ Index Down Only Slightly From August Gain

The Credit Managers’ Index (CMI) number for September is nearly the same as in August, falling by the narrowest of margins.

The gain made in the CMI in August showed an economy with an overall better performance than earlier in the year, and was the highest since for February. The sense was that some key areas were showing improvement, as the CMI has only been at or above this level three times this year. It can be asserted from September’s CMI (now available at that the momentum from late summer is carrying forward to some extent into the fall.

This occurred even with a slight decline in the favorable factor index due mostly to a reversal of the sales number, which newly unveiled statistics indicate is one of the worst two results of 2012.  It may be the most worrisome of the figures going forward because, without some expansion in sales, the other categories may start to slump as well. Still, there was plenty of positive news in categories including new credit applications, amount of credit extended and dollars beyond terms.

-NACM Staff

(Note: The complete CMI report for September 2012, available now, contains full commentary, tables and graphs. CMI archives may also be viewed on NACM’s website).


In Infancy, but Burma Starting Rise in Trade

Increasing evidence exists that the long economic isolation of Burma slowly is coming to an end. The United States has joined with most of the nations of Asia and Europe in reducing or eliminating the ban on imports from that nation.

The government of Burma continues its cautious path of reform and, thus far, the opposition leaders that have been behind Aung San Suu Kyi continue to assert that there has been progress. There is still a long way to go, but the pariah status has started to ebb.

Burma is at least three decades behind the rest of the region, but the opening that has taken place thus far is exposing the potential that exists in this country. In many respects, Burma has more to offer in the way of raw materials than its neighbors, even if the economy is primitive. And, if the country opens up further, there may be opportunities for low-cost manufacturing—a fact that has already attracted a lot of interest from China.

-Chris Kuehl, PhD, NACM economist

East Coast Port Strike Averted...For Now

A threatened East Coast strike of port workers now appears unlikely to be occurring in the coming weeks amid an extension of talks.

Negotiations in the last week involving federal mediators and two significant dockworkers unions (the International Longshoremen’s Association and the U.S. Maritime Alliance) have resulted in a 90-day extension of contracts that were due to expire on Sept. 30. A strike at most East Coast ports was almost sure to follow during the first days or weeks of October. While the labor dispute is far from settled, there is now more time for them to work things out while not disrupting trade in the fourth quarter.

The development was enough to cause Fitch Ratings to declare the movement one that “serves to minimize the credit impact expected from any future work stoppage.” A report unveiled by Fitch on Sept. 25, titled “East Coast Port Strike: Credit Implications,” noted port credit ratings are expected to remain "resilient," and that port liquidity is somewhat strong, among other positive factors.

- Brian Shappell, CBA, NACM staff writer

(Note: More on this story will be in this week's edition of eNews, available Thursday afternoon via e-mail or on the web at

Good News, Bad News on California Municipal Bankruptcy

As it looks more and more certain that one previously filed California community will not go through the entire Chapter 9 bankruptcy process, another seems to be spiraling toward it as quickly as any of its predecessors. And a 2011 state law designed to slow municipal bankruptcies may not be effective in this case, a strategy looking more like a trend in a state where so many debt-hobbled communities exist.

Atwater (CA) lawmakers/policymakers are expected to meet this week to consider taking steps to declare a fiscal emergency, a move that would circumvent the California mandate that forces municipalities to the table with creditors for a period of no less than 90 days before a Chapter 9 legally can be filed. It’s similar to the play made by San Bernardino, one of three California communities to file for municipal bankruptcy in the last year.  It appears the culprit in this case, like in many cities teetering on insolvency, is worker and retiree compensation and/or entitlements (pensions, health care, etc.).

On the flip side, the unwinding of Mammoth Lakes’ attempt to go through Chapter 9 appears to be continuing without a hitch. The possibility of the municipality avoiding going through the entire, painful process took off in recent weeks after it reached a tentative agreement on a settlement of the $43 million court judgment that was won in court by a land developer, a court ruling that almost single-handedly forced the community into insolvency. Said agreement occurred after Mammoth Lakes, essentially a resort/tourism town, officially filed for Chapter 9 protection.
It’s the second time in as many years that parties negotiated a settlement after a filing was made. Concessions with creditors in an out-of-court settlement between Central Falls, RI and its retired workers following that municipality's 2011 filing, one of the first and most publicized of the 2011/2012 wave of cases. The filing essentially forced the negotiations.

-Brian Shappell, CBA, NACM staff writer

Best, Worst Cities for Business Credit Risk

Experian’s third-annual State of Credit report found that the national average business credit score, broken down by city, dropped 4.4% from last year to a level of 55. The following are the best and the worst from the study:

Best cities based on average business credit risk score (lowest) are as follows:

  1. Minneapolis, MN

  2. Madison, WI

  3. Wausau, WI

  4. Sioux Falls, SD

  5. Cedar Rapids, IA

--San Francisco and Boston also appeared in this top 10.

Worst Cities based on average business credit risk score (highest):

  1. Harlingen, TX

  2. Jackson, MS

  3. Corpus Christi, TX

  4. Shreveport, LA

  5. Monroe, LA.

--Memphis and Myrtle Beach also appeared in "bottom" 10.

Most improved average credit scores (for consumers):

  1. Bakersfield, CA

  2. Sioux Falls, SD

  3. Tyler, TX

  4. Wichita Falls, TX

  5. Fort Myers, FL

--Las Vegas and Dallas also appear in this top 10.

Small Business Optimism Ticks Up in August

Despite negative job reports, the National Federation of Independent Business' (NFIB's) Small Business Optimism Index gained 1.7 points in August, topping out at 92.9.

Positive expectations included improvements in employment indicators and overall business conditions in the fourth quarter, as well as an increase in companies making plans for capital outlays. However, responses still indicated that few employers consider this to be a good time to expand, and political uncertainty reached a new high as small employers continue to act cautiously when it comes to growing their companies.

Weak sales were also a concern in August, as trends confirmed that consumer spending remains depressed and slowed noticeably in the middle of the year. The net percent of all owners, seasonally adjusted, reporting higher nominal sales over the past three months lost four points, falling to negative 13% after a seven point decline in June. Twenty percent of all respondents still cited weak sales as their top business problem. Historically, this is a high figure, but still pales in comparison to the record of 33% set in December 2010.

Expectations in credit availability were largely unchanged, as 7% of business owners reported that all their credit needs were not met, which is the same as it was in July. An additional 31% reported all credit needs met, and 53% noted explicitly that they didn't want a loan. Financing was the top business problem for only 3% of those surveyed, compared to 23% who cited taxes and 21% who cited unreasonable regulations and red tape.

- Jacob Barron, CICP, NACM staff writer

For more information on the NFIB's latest optimism report, check out this story in this week's eNews.

Unrest Threatening Credit, Investment Even in Growing African Economies

In an FCIB members-only teleconference earlier this month that focused on the global economic outlook, FCIA Vice President/International Economist Byron Shoulton noted that African nations with promise continue to be held back more so by lack of credit availability and new first-world investments because of worries about region than because of the widely discussed global economic crisis:

South Africa: Coming off a well-hosted World Cup that shined a positive spotlight globally on the nation in 2010, and its inclusion in talks among the powerful BRIC nations in recent years, the luster has been somewhat tarnished. Shoulton calls the deterioration rapid. “Governments have not been proactive in dealing with poverty. The miners’ strike and police killing of more than 40 people illustrates this. There has been rampant mismanagement.”
Zambia and Sudan: Both have seen heavy investment from China, largely their natural resource holdings. However, the often low quality of life of their people hasn’t changed mmuch with this increased investment, Shoulton noted: people wishing for better pay, living and working conditions have taken to calling the Chinese "new colonizers."

-Brian Shappell, CBA, NACM staff writer

(Note: For more on this topic, check out our story this week's eNews release on Thursday afternoon via e-mail or at

Obama Administration Announces Newest Chinese Trade Case at Ohio Campaign Stop

President Barack Obama announced his administration's latest World Trade Organization (WTO) case against China at a recent campaign stop in the electorally-important state of Ohio.

"Today my administration is launching new action against China—this one against illegal subsidies that encourage companies to ship auto parts manufacturing jobs overseas," said the president. "Those subsidies directly harm working men and women on the assembly line in Ohio and Michigan and across the Midwest. It's not right; it's against the rules and we will not let it stand."

Ohio has been devastated by job losses related to the nation's automotive sector, making a Cincinnati campaign stop a logical place for the president to announce this latest enforcement action.

Specifically the Administration has requested WTO dispute settlement consultations with the Government of China over their auto and auto parts "export base" subsidy program. Under the program, China provides extensive subsidies to auto and auto parts producers located in designated regions, known as "export bases," that meet export performance requirements. According to the president and trade officials, the program appears to provide subsidies prohibited under WTO rules because they severely distort trade, and provide an unfair advantage to auto and auto parts manufacturers based in China.

"The Obama Administration is committed to protecting the rights of nearly 800,000 American workers in our $350 billion auto and auto parts manufacturing sector. We insist upon having a level playing field on which our world-class manufacturers can compete," said U.S. Trade Representative Ron Kirk. "China expressly agreed to eliminate all export subsidies when it joined the WTO in 2001. China benefits from international trade rules and must in turn live up to its international obligations."

Separately, the U.S. also requested a WTO dispute settlement panel to address China's imposition of antidumping and countervailing duties on more than $3 billion in exports of American-produced automobiles. This marks the second step in a process to resolve the matter following the U.S. request for formal dispute consultations in June, which ultimately failed to resolve anything.

The Administration has brought, and won, a number of cases against China since Obama took office, including on China's export restraints on raw materials and a recent case, settled in favor of the U.S., against China's discrimination against American providers of electronic payment services.

- Jacob Barron, CICP, NACM staff writer

Mexico's Big Growth, Biggest Issue

There is a second renaissance in Mexican manufacturing underway, and this has the signs of stability that the first one lacked. Much has changed, and Mexican has shown an ability to learn from the Chinese and others in Asia.

There have also been some significant changes in the underlying economic drivers of manufacturing that favor Mexico and, this time, these will not be so easily matched by competitors in Asia or other parts of the world. There are three important reasons for the present Mexican growth: training in the manufacturing community, growing expense in production in China/other Asian nations and infrastructure superiority.

But the good news in Mexico is always tempered by the concerns that many have regarding the drug violence in the country. This is a very serious issue, but there is also an element of the overblown. In the last five years, there have been 50,000 deaths attributed to the drug violence, That gives Mexico a murder rate of 18.1 per 100,000 people. In contrast, the U.S. has a rate of 5.1, and China posts a 1.1 rate. The gang violence is primarily directed at rival gangs as the turf wars dominate the drug trade, though there are plenty of innocent victims in all this. From a development point of view, the issue is that Mexico has a reputation as dangerous, thus limiting the level of investment from the US and elsewhere.

Analysis: As with violence in most parts of the world, the worst of it is limited to select cities and parts of communities. Mexico has been promoting the fact that most of the industrial community remains immune to the attacks. That has helped somewhat, but the local and international press are quite focused on the violence, which has become for Mexico to overcome. The new government looks set to go back to old tactics that involve a focus on reducing the violence as opposed to dealing with the drug trade itself. The basic problem from the Mexican point of view is that the U.S. is such an immense market in said area. Until and unless the U.S. reduces that lure, there will be those in Mexico that seek to exploit the opportunity.

-Chris Kuehl, PhD, NACM economist

Fed Announces Plan to Buy $40 Billion Worth of Bonds per Month to Boost Economy

The Federal Reserve announced today that it would begin buying $40 billion worth of mortgage-backed securities on a monthly basis in order to boost the nation's lagging economy.

In a release, the Fed cited continued downward pressures on the economy, from both within the nation's borders and abroad, as their reason for instituting a new round of stimulus, which marks the first time since 2008 that the bank has made an open-ended commitment to buying government securities.

"Information received since the Federal Open Market Committee (FOMC) met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated," said the Fed. "The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook."

Furthermore, the Fed also decided to keep the target range for the federal funds rate at 0-0.25%, and currently anticipates that exceptionally low levels for the rate should be expected, and considered necessary, at least through the middle of 2015.

Along with the bank's decision to make $40 billion worth of bond purchases per month, the FOMC also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities back into agency mortgage-backed securities. Collectively, these two policies will increase the FOMC's holdings of longer-term securities by about $85 billion each month through the end of 2012.

"These actions should put downward pressure on longer-term interest rates, support mortgage markets and help to make broader financial conditions more accommodative," said the Fed.

- Jacob Barron, CICP, NACM staff writer

EU Crisis Having Noticeable Impact on the Asia-Pac, Latin America, U.S. Alike

In an FCIB members-only teleconference focusing on the global economic outlook this week, FCIA Vice President/International Economist Byron Shoulton painted a picture in which virtually all corners of the globe are being affected negatively, to varying degrees, by the ongoing euro-zone crisis.

Shoulton noted that recent agreements coming out of the EU designed to bolster debt-hobbled economies represent “the strongest act to date to save the euro, and long overdue.” But, as the situation continues to play out with the potential for Greece leaving the euro currency, and Italy or Spain possibly needing their own bailouts, export-dependant economies are taking a hit.

Shoulton noted that the drop in demand in the EU has affected the economic recovery of several nations and preventing still-growing nations from hitting their targets.

The crisis is affecting Latin and South American nations in another way, as well. Shoulton noted that European-based banks were known to fuel trade financing, with estimates of 33% and 40% of all trade financing for the region emanating from EU-based banks, especially in France and Spain. That could provide a drag on growth potential for emerging Latin trade markets.

-Brian Shappell, CBA, NACM staff writer

(Note: Shoulton wasn't negative in his entire teleconference; in fact, he noted there are notable positives, overall, to be found in a couple of regions particularly. For more, check out the lead story in this week's eNews, to be released via email Thursday afternoon and posted at

Moody's Warns the U.S. on Partisan Gridlock

Rarely has a warning from a ratings agency been so thinly veiled as Tuesday’s message from Moody’s Investors Service.

In its “Update of the Outlook for the U.S. Government Debt Rating,” Moody’s noted the United States’ coveted “Aaa” sovereign credit rating, now in a “negative” outlook category, might take a hit and see a downgrade if increasingly partisan lawmakers continue their failings to work together on budget and debt issues. among others.

“Budget negotiations during the 2013 Congressional legislative session will likely determine the direction of the U.S. government's Aaa rating and negative outlook,” said the Moody’s report. “If those negotiations lead to specific policies that produce a stabilization and, then, downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable. If those negotiations fail to produce such policies, however, Moody's would expect to lower the rating, probably to Aa1.”

Moody’s added the U.S. is unlikely to keep a “Aaa” rating if it can’t convince the agency with its actions to change its “negative” outlook setting.

During an FCIB members-only teleconference this week with FCIA Vice President/International Economist Byron Shoulton, he noted that getting Democrats and Republicans to work together was of paramount importance.

“(Last year’s) downgrade, while controversial, was a necessary signal that needed to be sent,” he told FCIB members. “Until opposing political ideology accept that compromise is a must, recovery will be difficult in the U.S.” He added that the political gridlock and gamesmanship is having a negative impact on everything from bank lending to consumer and business confidence. He suggested that whomever wins the November presidential election would be well served to extend the olive branch to the other party in a hurry.

“Whoever wins the election is going to have to pull out all the stops for financial growth,” he urged.

-Brian Shappell, CBA, NACM staff writer

(Note: For more information on FCIB membership and to gain information on a replay of Shouton's economic outlook, visit

Can Olympics, World Cup Help Brazil Reverse Course

Brazil, once the emerging belle of the economic ball has become in 2012 a nation falling from grace. The latest PMI numbers (see eNews for story at show some notable damage through the summer in the manufacturing sector.

One bright spot for Brazil was expected to be its role as host for both the Olympics and the World Cup this decade. There’s still a potentially significant economic bump to be had there, though delays and red tape have pushed back the start of some key projects to date. A big question will be how much the whole “global economy” ethos could cut into the suddenly needed gains on the part domestic outfits there.

“It has been made clear that Brazil will count on private companies and foreign operations far more than in the past, and it has been stated publicly that at least one-third of the work will be privatized,” said, NACM Economics Chris Kuehl, PhD. “As this infrastructure build gets underway, the Brazilian manufacturer will see some opportunity, but so will other companies in other nations.”

- Brian Shappell, CBA, NACM staff writer

Ratings Agency Negative on U.S. Banking; EU Creditworthiness

Moody’s Investment Services decided this week to maintain the negative outlook for U.S.-based banking institutions on concerns of high unemployment, lackluster growth and inflation-goading low interest rates. Granted, Moody’s did note that banks were strengthening a little compared with a couple of years ago and that the negative American outlook was more because of its key trade partners in the European Union than its own systematic problems.

The negative outlook news came one day after Moody’s dropped its outlook for the European Union long-term rating from stable to negative after the same negative outlook was hung on Germany, France, the Netherlands and the United Kingdom, respectively, in previous weeks and months. The four come a few points shy of comprising half of all EU budget revenue. Moody’s voiced concerns about defaults on loans owed from other countries to members of the four previously mentioned.

Still, somehow the EU has maintained a Aaa rating with Moody’s, to some surprise. Granted, many continue to suggest that Moody’s ratings should be taken with a grain of salt. Earlier this year, Ed Altman, PhD, professor of finance at New York University’s Stern School of Business and creator of the Z-Score bankruptcy prediction metric, had called some of Moody’s sovereign ratings an embarrassment. “Spain and Italy are still ‘A3’ from Moody’s and similar from S&P, but we all know these countries absolutely are no longer A-ratings credits,” he said during NACM’s Credit Congress in June, weeks before those ratings dropped.

- Brian Shappell, CBA, NACM staff writer

Jackson Hole Anticlimax For the Fed

Analysts were mostly correct about the actions taken at the Jackson Hole meeting of the central bankers and their advisors…and that was not all that comforting to the markets. Once again the message from Federal Reserve Chairman Ben Bernanke was tantalizing but not definitive.

The mantra remains the same as it has been for months -- “We’re prepared.” If conditions worsen enough, there are still tools that can be used. The problem is that the economy is teetering somewhere between really bad and sort of good. There is no clear movement in either direction, leaving the Fed at something of a loss.

Analysis: If one looks at the data, there is something to depress and encourage on a daily basis. The jobless rate is not getting much better, but it isn’t getting much worse either. Housing starts are up and so are prices, but the manufacturing sector has slowed somewhat. Inflation has spiked at the “real” rate due to the costs of fuel and food, but inflation at the core level has been low. There have been some slightly better GDP numbers, but they remain low. Retail sales improved as the back‐to‐school period started, but consumer confidence is still low.

There is no clear path in sight…other than the Fed remains “prepared.”

-Chris Kuehl, PhD, NACM economist