S&P/Case-Shiller: Housing Continues Improvement despite Concerns

Half of the 20 largest markets measured by Standard & Poor’s/Case-Shiller Home Price Indices suffered a loss between September and October. Still, the improvement between October 2012 and October 2013 continues to impress even as some uncertainty lies ahead.

All 20 cities posted annual growth since October 2012, with particularly strong gains in markets that had been damaged most during the last decade's housing market crash (Las Vegas, San Francisco, and Los Angeles). Even the smallest gainers (New York, Cleveland) posted gains nearing 5%. That said, nine markets actually showed negative movement on housing prices on a monthly basis between September and October, while another posted a flat performance. Factor in economic uncertainty tied to the Federal Reserve’s tapering of quantitative easing and its impact on mortgage rates as well as increasing common predictions of single-digit price growth in 2014, and housing’s future looks far from clear in the near term.

“Housing data paints a mixed picture suggesting that we may be close to the peak gains in prices,” said David Blitzer, of S&P Dow Jones. “However, other economic data point to somewhat faster growth in the new year.”

- Brian Shappell, CBA, CICP, NACM staff writer

December CMI Falls Dramatically, Erases Recent Gains

Market-watchers looking for holiday cheer will be hard pressed to find any in the December Credit Managers’ Index (CMI), scheduled to be published by the National Association of Credit Management (NACM) at 11:30 am today (EST).

The Combined Index fell dramatically, erasing most of the gains made in the last few months and taking the CMI back to levels not seen since the middle of summer. The manufacturing index fell significantly, and that was the better performing sector for the month, as a slow response to Christmas and a slowdown in the housing sector became apparent.

The CMI’s four favorable factors registered the biggest declines, as the gains made in the second half of the year seemed to evaporate. Particularly noticeable for market-watchers will likely be the sharp reduction in sales and new credit applications. The unfavorable factor index fell as well with dollar amount beyond terms taking a big dive in December.

What’s most alarming about the December CMI has more to do with the CMI in general than it has to do with any one particular factor. “The most concerning part of this month’s data is that the CMI is very often a predictor of what is to come in the near future given its ability to track the availability of credit,” said Chris Kuehl, PhD, NACM economist. “This month’s reading could signal that the economy is due to slow down substantially in the first quarter of the year.”

There were some reasons for optimisms, as noted by Kuehl. Mainly, that included only a small drop in amount of credit extended, which “gives some faint hope that many companies are still interested in making credit available to customers they trust,” and an improvement in rejections of credit applications. Additional, the sense that financial issues are of more recent origins could mean a turn in either a negative or positive direction in early 2014.
“The situation could get more serious and some of the longer-term issues could emerge, or this might be more of a curve in the road and just a delay in the response of the overall credit world and the economy,” said Kuehl.


For a full breakdown of the combined, manufacturing and service sectors, in addition to tables and graphs, view the complete CMI report for December 2013 online. CMI archives may also be viewed on NACM’s website.

European Roundtable Series on Ethics Highlights Need to "Know YourCustomer"

Earlier this month, the fourth of five events in FCIB’s European Roundtable series on the topic of Compliance & Ethics (C & E) hit Amsterdam. FCIB approached the topic from a credit risk perspective with a focus on the “KYC” element (Know your Customer) of the compliance policy. Those corporates with an American “parent” were more aware of KYC culture and its impact on deterring issues like money laundering and terrorist financing, whilst others were divided on who was responsible within their companies.

Some member corporates based within European Union nations were not quite as familiar with current legislation and, in particular, the EU 4th directive.  Broadly speaking, the EU Commission has adopted two proposals therein to update and improve the EU’s existing legal framework designed to protect the financial system against money laundering and terrorist financing. That said, the 4th directive has not been widely disseminated as yet and, in many cases, assumptions seem to have been made that this would be handled by in-house legal teams or a chief compliance officer, rather than credit managers there.

During the interactive programs, some of the key principles of the KYC element of C&E included the following:

  • Screening of customer’s company ownership, such as directors’ addresses.

  • Knowing where the goods’ final destination is.

  • Keeping everyone on the credit team familiar with things like embargo and sanction lists.

  • Knowing where payments are coming from.

  • Dealing with third-party payments.
The five-event series that began in September in London will culminate with the final event in Zurich on February 13.


So Much for Those Cheap Oil Prices

The supply of global oil is taking a hit, and the US will soon be experiencing its first real test of its ability to avoid the pressures of the oil market. Though newfound shortages have not reached critical levels yet, for now the price per barrel may increase.

The South Sudanese crisis is exploding and has already affected the production from that nation. This would not be such a big deal were it not for the fact that there have been problems with supply in Libya and Nigeria as well. Saudi oil production had already been reduced in the last few months, as demand had been low.

The big question is whether the US has become enough of an oil producer to protect itself against the ravages of global oil disruption. The US has become the world’s largest oil producer of late, in part because other major producers have been reducing their own output. Analysts are betting that traditional oil states will delay their response to what is happening with oil prices to see the global per barrel price rise back to a point where margins improve. In addition, there is a restriction on selling crude outside the US that will negate its ability to contribute to a general increase in the level of oil globally.

-Chris Kuehl, PhD, Armada Corporate Intelligence

S&P Makes Waves with Ratings Moves on EU, Mexico

Undeterred by apparent attempts of late by the European Union to control the message coming out of the three largest credit ratings agencies, Standard & Poor’s boldly cut the EU’s “AAA” credit rating late last week. Meanwhile, an emerging economy appears to be catching the agency's eye in a good way.

Citing ongoing, well-publicized concerns about European sovereign debt levels, the EU was cut to a rating of “AA+.” S&P, which was the only of the ratings agencies to cut the U.S. rating in recent years over debt and government gridlock, in previous months and years cut ratings and/or outlooks for a number of member nations in the EU. It comes on the heels of a European report that claimed massive deficiencies in how S&P, along with Moody’s Investors Service and Fitch Ratings, generates its ratings – the report is seen by many as setting the stage for the EU to fine and/or sue each of the three agencies. The EU also attempted to censor the agencies, essentially, by passing fast-tracked legislation about a year ago attempting to set up time frames for when the agencies could release information on sovereign ratings. It also opened the door for investors to sue them if ratings information caused them significant financial losses.

S&P did, however, uphold the sterling “AAA” rating for Britain, which is not on the euro as a currency even as it is member of the EU. Its government’s debt reduction efforts have impressed S&P analysts.

Also impressing S&P analysts is the direction of Mexico. As such, its sovereign long-term foreign currency rating was raised by one level to “BBB+.” Mexico’s latest rise is tied almost solely to the recent change there in energy policy in which private investment will be allowed within the oil/gas sector for the first time since the late 1930’s. As such, S&P sees massive new potential for Mexican growth levels that had already been rising impressively in years before this monumental policy announcement. Mexico had previously been building credibility because it was able to insulate its economic plight during the global downturn more so than most other emerging and traditional power nations.

-Brian Shappell, CBA, CICP, NACM staff writer

Industries to Watch: Retail, Coal

Long before Black Friday drew disappointing results, Industries to Watch warned that retail was in the midst of an uphill financial battle. Bruce Nathan, Esq., partner with Lowenstein Sandler LLP, called it quite possibly the biggest industry of concern regarding insolvency, especially for those late to the e-commerce party. Now, clothier Loehmann’s has become an unfortunate example of this very situation as it will shut its doors due to its Chapter 11 bankruptcy filing this week.

The filing was the company’s third, and an auction of assets is tentatively slated for December 30. Loehmann’s last reorganized a little more than three years ago. The near 100-year-old company never found its footing in an increasingly online-driven clothing marketplace, partially because it was among others “playing from behind,” those that waited too long to address the changing marketplace.

While Loehmann’s had its issues for many years, don’t expect this to be the last retail bankruptcy, especially in clothing. A number of issues continue to dog the sector, like a slow e-commerce response and over-leveraged financials. “The bottom line is you are going to see a shakeout in the retail area in the next few years,” Nathan said.

Another distressed industry, as Industries to Watch noted in September, is coal -- that was brought back to the headlines this week as a U.S. Bankruptcy Court judge approved the restructuring plan of one of the industry’s key players, Patriot Coal Corp. While there is much talk of a clean slate and a newfound liquidity infusion from the likes of Deutsche Bank and Barclays, concerns about Patriot’s business and that of competitors lingers.

Competition from natural gas presents “a permanent concern for the industry and a real obstacle,” said Adam Rosen, director of PricewaterhouseCoopers LLP’s financial restructuring group, in September. Little has changed since. In addition, there is the ever-present threat of mine closures and costly renovation mandates stemming from escalating federal regulatory efforts to address safety or environmental concerns.

“You’ve seen producers publicly say they think the worst is behind them, but they’re not overly bullish in the near term,” Rosen said. He added that deep struggles should be expected for at least another year. Those without solid cash standings to weather that storm are likely to face a solvency crisis.

“The sentiment is it will not be a fast recovery…but recovery is expected,” Rosen noted. Perhaps more than any other in that industry, the next several months of activity out of Patriot warrants close monitoring for anyone providing credit terms to the company or those downstream.

- Brian Shappell, CBA, CICP, NACM staff writer

Federal Reserve to Begin Tapering in January

The Federal Reserve finally answered the long-asked “when” question in regarding the beginning of the pull back on its asset buying-based stimulus efforts, announcing that a slight decrease in the pace of purchasing will begin early next year. NACM Economist Chris Kuehl, PhD predicted the move would “cause a ripple” in the business and investment worlds as the “money crutch” will start to vanish soon.

The Federal Open Market Committee (FOMC) broke Wednesday from its two-day fiscal policy meeting, the last of 2013, with the announcement that it would leave rates untouched at a range between 0% and 0.25% and would roll back the its assets purchase pace by about $5 billion per month. The decision was made with acknowledgement that the economy is now expanding at a moderate pace, longer-term inflation expectation have remained stable and risks to the positive economic outlook have become more balanced.

“In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases,” the Fed posted in a statement on its website. “Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month.” It added that the FOMC would maintain its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities as well as rolling over maturing Treasury securities at auction.

FOMC member Eric Rosengren fought the decrease on the grounds that the unemployment rate remained elevated and the inflation rate tracking below its target rendered a change in the purchase program “premature.”

Kuehl said the move to begin tapering early next year is “no shock.” The economist believes markets could read the action as the Fed signaling a deeper adjustment in its thinking sooner than later. However, Kuehl also noted that the somewhat surprise deeper concern about deflation than inflation now appears to exist could cause the Fed to “keep its foot on the gas” more than it wants to during the next few policy meetings in 2014.

“The expectation was that inflation would become more likely the more money was dumped in the economy, but that has not been the case,” he said. “The last thing the Fed wants to do is invite Japanese-style deflation into the equation.”

-Brian Shappell, CBA, CICP, NACM staff writer

Judge Approves Visa-MasterCard Settlement

U.S. District Judge John Gleeson approved the controversial settlement in the Visa-MasterCard antitrust case last week, putting what might only be a temporary end to years of litigation over how the world's largest card networks set their interchange, or “swipe,” fees.

The final settlement will only cost Visa and MasterCard $5.7 billion, which is still the largest antitrust settlement in U.S. history, but lower than the price tag originally negotiated in July 2012 of $7.25 billion in direct payments and temporary interchange rate reductions. The cost of the settlement fell due to the fact that 8,000 merchants, among them retail titans like Amazon and Wal-Mart, opted out of the deal.

Opponents were swift to respond. “We are very disappointed that this deeply flawed settlement has been approved. It is not supported by the retail industry and would do nothing to reduce swipe fees or keep them from rising in the future,” said National Retail Foundation (NRF) Senior Vice President and General Counsel Mallory Duncan. “The settlement permanently ties the hands of thousands of businesses who wanted nothing to do with this misguided case, and a decision to approve it violates established law and common sense,” she added, noting that NRF will review the case and the ruling to figure out the opportunities for an appeal.

Final approval of the ruling comes just over a year after Gleeson preliminarily approved the settlement back in November 2012. That earlier ruling allowed merchants to surcharge their customers for paying with a credit card, a practice that first became permissible under Visa and MasterCard's acceptance agreements with merchants as of January 2013. The final ruling in some ways cements a merchant's right to pass down their processing costs, at least for the time being, although it still does not supersede state-law bans on the practice of surcharging, which have come under scrutiny following a recent ruling by another judge in New York that said the state's surcharging ban was unconstitutional. Similar challenges are expected in other states in 2014 which could pave the way for more widespread surcharging.

Still, retailers, for whose benefit the settlement seemed exclusively crafted, are not expected to partake in surcharging for fear that it would drive customers to other competitors who don't engage in the practice. Additionally, some have noted that as credit cards have come to dominate consumer purchase methods, retailers have already built their card processing costs into their pricing, meaning they won't latch onto surcharging simply because they've been surcharging this whole time.

For companies that sell to other businesses, surcharging can look considerably more attractive, and this final settlement provides some small measure of certainty, although again, every company must pay close attention to state restrictions and the specific language of the settlement before implementing any form of surcharging program on card-using customers. Learn more about surcharging and B2B sales in the upcoming January 2014 issue of Business Credit, and stay tuned to NACM's blog and eNews for more information on how the ruling's final approval affects commercial creditors.

- Jacob Barron, CICP, NACM staff writer

EU Prepping Lawsuit, Fine for Credit Ratings Agencies?

The three largest credit ratings agencies, all based in the United States, have faced plenty of criticism for its decision-making and publicly released outlooks both before and after the global economic downturn. But the European Union appears to be setting up to consider actually suing or fining the trio over damages and ongoing business practices.

The European Securities Markets Authority published a report this month that claimed numerous deficiencies were in play regarding the how sovereign ratings are generated by Fitch Ratings, Moody’s Investors Service and Standard & Poor’s. The report found that the agencies demonstrated problems that included conflicts of interest, confidentiality in disbursement of ratings information, timing of information releases and resource allocation (not enough qualified analysts, use of junior-level or newly hired employees, etc). The Authority warned that it has “required the CRAs to put in place remedial action plans to address the issues identified and will monitor their progress against these plans as part of its ongoing supervision.”

The three credit ratings agencies were criticized heavily for their performance in ratings of both companies and countries during the run-up to the worst global recession in more than half a century. In addition, European leaders continued criticism as the agencies in recent years routinely lowered ratings of and put on warning high-debt nations including all of the PIIGS (Portugal, Ireland, Italy, Greece, and Spain), even though all of which since proved to have deep-rooted fiscal issues.

The EU previously struck at the agencies with what amounted to an attempt to censure them or, at the very least, tightly control aspects of information releases. Last winter, the EU fast-tracked legislation that restricted the timetable in which any of the agencies could release news of sovereign credit ratings of any EU member. The regulations also empowered investors with the right to take legal action against the agencies if financial losses could be tied back to vague measures of “gross negligence” or “malpractice” on the agencies’ part.

-Brian Shappell, CBA, CICP, NACM staff writer

Important Online Payments Survey Deadline December 13 (Includes SampleResponses)

Update: Deadline for participation is today!

Credit professionals who wish to participate in a Federal Reserve survey that will help shape the future of electronic and other payment systems have until the end of the week to take part in the important initiative. Proposed solutions from which will be discussed as part of Credit Congress on June 11 in Orlando.

As part of the Fed effort, the agency has created an online survey about online payments, which NACM urges its membership to complete before its close on December 13, to assist it in learning directly from professionals about issues end users have or believe should be addressed. The survey can be accessed directly here.  Questions focus on topics such as increased potential/risk for fraud, international transactions, timeliness of funds availability and efficiency gaps. More details about the initiative are available in the Federal Reserve report titled Payment System Improvement–Public Consultation Paper.

The following is a sample of response answers, based off the experiences of a veteran credit and payments professional:

1. Yes.

2. Yes.

3. No comment.

4. I agree that it will take public authority and comprehensive changes in the banking system, including the likely elimination of private banking.

4ii. ERP's, Demographics, middleware service providers, etc., will need to play a larger role in the implementation of any solutions.  Monetization of the service will play a large role because implementation for the end user (BUSINESS) will be costly.

5ii. I agree but even then, only a small portion of the B2B payments will use this solution because of the divergence of all payment technologies.

6i. ll interesting ideas but which institutions die: Private banking? Debit Cards? Credit Card? ACH? I think they all coexist and seriously doubt the viability of a single solutions that is the answer to the large majority of B2B payment solutions

6iii. Near-real-time may not be good enough...might the product be out the door still if it is less than real-time?

6iv. B2B.

7. Both are necessary.

8. Near real time will not prevent most fraud.

8i. If I am able to access the account information, maybe I am out with the product even faster because the business assumes the account and funds are mine.

9. C2B (customer-to-business) good, B2B (business to business) unlikely changed.

10. Emergence of greater use of credit card technologies in B2B.

11. skip.

12i. Nervous populous about data security.

12ii. Virtually none because of the US appetite for private banking (which I also favor)

13i. Consumers -- I think most who will shift have shifted. Demographics will drive the balance of change over time. For Business -- I think the AP systems (human and technology) are the largest deterrent to change.

13ii. No.

14i. I believe demographics are now the greatest contributor to the adoption.  I do not think technologies will drive B2B payment behaviors.

14iii. B2B mindset of merchant or merchant expected payment behaviors.  If one expects electronic payment, one will likely receive it.  But, technologies must be available for B2B implementation of the expectation.

15, I do not believe it will be broadly used, no more so than it is used today.

16. Companies who need cross-border payments MAY use them, but security will be a huge issue.

17i. All are equally vulnerable.

18-19. Skip.

20. Cannot enact the "build it and they will come" mindset, thus, B2B solutions must include the merchants.

- Brian Shappell, CBA, CICP, NACM staff writer

Regulators Approve Tough New Volcker Rule

Federal regulators voted today to approve a new version of the Volcker Rule, a cornerstone of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) that strikes at how banks take risks with their own capital.

As expected, all five of the Federal regulatory agencies responsible for implementation and enforcement, the Federal Reserve, the Securities and Exchange Commission (SEC), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Commodity Futures Trading Commission (CFTC), approved a tougher version of the rule than many on Wall Street had hoped. In particular the rule bars banks from trading for their own gain, limits their ability to invest in hedge funds and requires banks to change their compensation policies so that they don't inadvertently reward the kind of proprietary activity the rule specifically aims to end.

The newly-approved version also requires banks to identify the exact risk that they're aiming to hedge when they make certain trades or investment that they allege are aimed at alleviating risks. This ties back directly to JP Morgan Chase's $6 billion trading loss from 2012, wherein the bank alleged that it had taken certain steps in order to broadly hedge their risks, when in reality the trades were speculative and ultimately ended in the aforementioned loss. The regulators don't want banks hiding behind risk-hedging in order to make risky profit-driven trades, hence this provision's inclusion in the final rule.

CEOs of covered institutions must also attest to regulators, on an annual basis, that the bank itself has taken steps to comply with the new Volcker Rule, which is a new provision designed to make it harder for banks to find loopholes around the rule. However, reports noted that this provision could've been even tougher if it required CEOs to attest that their institutions were actually in compliance with the rule, rather than merely certify that they were making an attempt to comply.

Find out more about the new Volcker Rule and what it means for you in this week's upcoming edition of NACM's eNews.

- Jacob Barron, CICP, NACM staff writer

Survey: Corruption Problems Rampant, Emerging Economies Still Far Behind

More than two-thirds of the 177 countries tracked in the newly released 2013 edition of Transparency International’s Corruptions Perceptions Index were found to have serious problems in corruption levels. Perhaps even more troubling is the absence of any of the traditional power economies among the 10 best nations or much in the way of improvement in emerging economies of note.

The two best performing nations in this year’s Corruption Perceptions Index, Denmark and New Zealand, tied at a level of 91. They were followed closely by Finland, Sweden, Norway and Singapore, representing almost no change from last year. Tied for worst performance, at a level of 8, were Somalia, North Korea and Afghanistan. Just 54 nations scored at or above the floor level of 50 that marks a serious corruption problem for those below it.

“This indicates a serious, worldwide corruption problem,” said Huguette Labelle, chair of Transparency International. “The world urgently needs a renewed effort to crack down on money laundering, clean up political finance, pursue the return of stolen assets and build more transparent public institutions.”

Among the true power economies, Germany led the way by scoring a 78, which earned it a 12th place ranking. The United Kingdom wasn’t far behind in 14th (76), with Japan in 18th (74) and the United States in 19th (73). Straddling the line between power players and emerging economies, China again lagged with a score of 40, good for 80th position. It was equal to Greece, which despite the low level can take heart in the four-point improvement since last year, according to Transparency International’s data. Fellow European Union bailout-recipient Ireland posted a similarly impressive improvement and came just short of cracking the top 20. Spain represented one of the worst declines in the index, falling to 59 from a 2012 level of 65.

Other economies considered “emerging” continued to demonstrate that corruption was holding back their potential in the business world. Turkey registered a score of 50 (53rd place), followed by Brazil’s and South Africa’s 42 (72nd), India’s 36 (94th), Mexico’s 34 (106th ) and Russia’s typically poor 28 (127th).

- Brian Shappell, CBA, CICP, NACM staff writer

J.P. Morgan/Markit: Global Service Output, Orders Grow

The J.P. Morgan Global Services Business Activity Index, compiled in association with financial information services firm Markit, found a sizable uptick from 51.8 in October to 53.9 in November. J.P. Morgan/Markit noted the accelerated growth rate came largely from a hot rebound in services output and new growth activity in the United States, as the pace of acceleration in the euro zone lost some steam thanks to France and Italy.

The U.S. Services PMI recovered from an October performance that had been stunted by the federal government shutdown. New orders, outstanding business and backlog accumulation all increased for the month, as did service-sector employment. However, the total rate of job creation when including both manufacturing and service side jobs was at its weakest since March. Also disconcerting was that service providers’ level of optimism in November dropped to a one-year low, according to J.P. Morgan/Markit:

“More than half of all companies expected to see higher activity in the coming year…however, the survey saw a rise in the number of companies citing concerns that activity could weaken, often linked to uncertainty arising from further potential fiscal standoffs.”

J.P. Morgan/Markit also released the following November results for service sector PMI levels in other nations this week:

Brazil – 52.3  (52.1 in October)
China – 52.5 (52.6 in October)
France – 48 (50.9 in October)
Germany – 55.7 (52.9 in October)
Japan – 51.8 (55.3 in October)
Russia – 52.9 (52.5 in October)
Spain – 51.5 (49.6 in October)

- Brian Shappell, CBA, CICP, NACM staff writer

Visit http://www.nacm.org/enews.html#6 to view NACM’s eNews story this week about the latest manufacturing-side PMI data from around the globe.

U.S. Supreme Court Upholds Forum-Selection Clauses

A new Supreme Court ruling found that the venue of legal proceedings should be the one specified in a contract’s forum-selection clause in all but "extraordinary" and the "most unusual" cases of public interest.

The Supreme Court of the United States reviewed a lower court ruling in Atlantic Marine Construction Company, Inc. v. J-Crew Management, Inc. that revolved around a lawsuit filed over a withheld final payment from a Virginia-based general contractor, Atlantic Marine, to a Texas-based subcontractor, J-Crew, and an attempt by the sub to keep the case closer to its home (and where the work was performed) despite contract terms. The ruling, written by Justice Samuel Alito, found that a district-level judge should, as an "ordinary" course of business, transfer civil actions upon request when the destination court was agreed to by contract in a forum-selection clause. Only a very rare or "extraordinary" public-interest matter should be considered to break from terms agreed to in such a clause. J-Crew, which argued on a basis of convenience and costs for its small company, lost in its bid to have the case heard in Texas despite a lower court ruling that would have allowed it because the contract specified disputes would go forth in Virginia. Alito noted that, via the forum-selection clause terms, J-Crew "knew that a distant forum might hinder its ability to call certain witnesses and might impose other burdens" well in advance.

"Motion to transfer based on a forum-selection clause should not consider arguments about the parties' private interests," Alito wrote in the unanimous decision. "When parties agree to a forum-selection clause, they waive the right to challenge the preselected forum as inconvenient or less convenient for themselves or their witnesses, or for their pursuit of the litigation." The judge suggested that failure to honor the forum-selection clause in that way might encourage widespread venue-shopping and "gamesmanship" from either side of the general contractor-sub relationship. In essence, moving the case out of an agreed-upon court could give a local plaintiff an unfair advantage because of knowledge of state law. Alito also wrote of fairness regarding changing contract terms that may have been influenced by where disputes, should they arise, would be heard:

"When parties have contracted in advance to litigate disputes in a particular forum, courts should not unnecessarily disrupt the parties' settled expectations. A forum-selection clause, after all, may have figured centrally in the parties' negotiations and may have affected how they set monetary and other contractual terms; it may, in fact, have been a critical factor in their agreement to do business in the first place. In all but the most unusual cases, therefore, the interest of justice is served by holding parties to their bargain."

The Supreme Court also remanded the case back to the Court of Appeals for the Fifth Circuit to review whether any extraordinary public-interest factors were in play. STS National Sales Representative Chris Ring noted such a case also drives home the deep importance of having credit on the same page with upper management and sales where specific details of contracts are concerned, especially when large dollar values are in play. Granted, there are 24 states that have language limiting forum-selection clauses.

- Brian Shappell, CBA, CICP, NACM staff writer

Check back in the coming days for additional legal analysis of this Supreme Court case here at http://blog.nacm.org.

Federal Reserve: Growth in All 12 Districts Through Mid-November

The Federal Reserve’s Beige Book economic roundup noted growth that was either “modest" or "moderate” for all 12 districts from October through mid-November in a Wednesday release: 
“Manufacturing activity expanded at a modest to moderate pace in most Districts during the reporting period. Companies across a number of sectors in Philadelphia noted a reduction in activity due to the federal government shutdown, while defense contractors in Boston reported that sequestration has not yet affected them significantly. Chicago highlighted the motor-vehicle industry as a main source of strength due to a large number of new vehicle launches and increasing demand for medium- and heavy-duty trucks. Cleveland and St. Louis also reported increased motor-vehicle production. Steel producers in Dallas and San Francisco indicated that demand was steady, while producers in Cleveland and Chicago experienced a slight drop-off in production. San Francisco noted an increase in demand for semiconductors driven by demand for mobile-technology products. High-tech manufacturing firms in the Dallas District said that demand was flat to modestly weaker; however, respondents expect a gradual increase in demand over the next three to six months. Contacts expressed varying degrees of optimism about near-term business activity."

Consumer Spending
"Consumer spending increased in almost all Districts at a modest to moderate pace. A Boston retailer noted that sales performance during the 2013 holiday season will be a better test of what seems to be an improving trend. Philadelphia retailers reported hopeful, but very uncertain expectations…retailer expectations in the Atlanta District, Minneapolis and Kansas City are cautiously optimistic about the buying mood of holiday shoppers. Sales of new motor vehicles continued at a moderate to strong pace across most Districts, although Dallas reported a slight decline [and Kansas City’s were flat], which was attributed to a lack of consumer confidence and continued uncertainty. Motor-vehicle purchases in Kansas City were flat."

Real Estate and Construction
"Residential real estate activity improved in Boston, Philadelphia, Chicago, St. Louis, Minneapolis, and San Francisco, while remaining steady or softening in other Districts. Some slowing in single-family home sales was attributed to seasonal factors. Nonetheless, sales remain largely above year-ago levels. Increasing demand, low to declining levels of inventory, and slowly rising new-home construction were cited by almost all Districts as reasons for a continued rise in home prices, but at a slower pace than was observed earlier in 2013. Commercial real estate activity remained stable or improved slightly across many Districts. The technology sector drove demand for commercial real estate in the San Francisco District, and Cleveland saw gains in affordable housing and shale-gas-related activity. The outlook of market participants is for continued improvement in the Philadelphia, Atlanta, Kansas City, and Dallas Districts, while contacts were cautiously optimistic in Boston and Cleveland."

Banking and Finance
"On balance, banking conditions remained stable in a majority of reporting Districts. Loan volume showed a modest increase. An increase in business-credit activity was seen in a number of Districts. Commercial real estate lending increased in New York, Cleveland, Atlanta, Chicago, Kansas City and San Francisco. Demand for commercial and industrial loans rose in the New York, Atlanta and Kansas City Districts, but weakened in St. Louis. C&I lending was unchanged in Chicago. Several Districts reported increased credit quality, as delinquencies have continued to decline and fewer problem loans have been reported."

Agriculture and Natural Resources
"Strong crop yields were reported, while in general, agricultural commodity prices fell and drought conditions stabilized or improved. Reports indicated a continued expansion in energy demand and production."

Source: Federal Reserve

Detroit Ruled Eligible for Bankruptcy, Largest in U.S. History

It might be a dubious claim to fame, but also a necessary step, for one of the nation’s worst debt-beleaguered cities: Detroit officially became the largest city to enter Chapter 9 bankruptcy in U.S. history today after the filing was cleared by a judge.

As predicted by NACM, U.S. Bankruptcy Judge Steven Rhodes ruled the city was, in fact, insolvent and that it was legally eligible for a municipal bankruptcy filing. Detroit's Chapter 9 endured months of heated court and behind-the-scenes wrangling. Unions and other groups representing retirees and current city employees repeatedly argued, to no avail, that a Chapter 9 on the part of the city violated the Michigan Constitution. However, city and state officials as well as the U.S. Justice Department defended Detroit's right to file, saying the filing does not amount to any state or federal constitutional violation. Supporters also argued bankruptcy is the only way back for a city nearing $20 billion in unfunded debt, primarily caused by massive entitlements (pension, health care) for public workers and retirees as well as years of mismanagement.

Rhodes intimated throughout the process that it was unlikely that the constitutionality argument would derail the proceedings.

- Brian Shappell, CBA, CICP, NACM staff writer

Better News from Global Manufacturing on B2B Buying

The latest data from the J.P. Morgan/Markit version of the Purchasing Managers’ Index shows that gains are still being made despite some of the challenges facing retailers. There is obviously enough demand somewhere to justify the expansion of the manufacturing sectors in Asia as well as Europe and the United States. Much of this demand is coming from business and industry as opposed to the demand from consumers.

For the fifth straight month, the index for the euro zone ceded the 50 mark separating expansion from contraction. It now stands at 51.6, and that is up from the previous flash estimate. The impetus for that growth came from a predictable source: Germany. The German reading was much higher than it was expected to be and is at the highest level seen in over two years. They were joined in this progress by the Netherlands and, to a lesser extent, Italy, whose 51.4 level market its highest point in over three years. France, however, was still a laggard in the euro zone. Even Spain and Greece had more to hang their hats on with improved export numbers.

The UK numbers are as good as they have been in many months, reaching a 58.4. This mostly stemmed from expansion in the Middle East and Africa. Of all the nations in Europe, the British have been the most aggressive in developing business in these new markets, and it is starting to pay off.

The Asian numbers also looked better than expected. China stayed about where it has been at 51.4 (official version) or 50.8 (according to Markit). The Chinese are not getting the boost from export business they are accustomed to, but there is evidence the domestic economy is making a bigger contribution these days. One of the most impressive changes took place in Japan, and there are many who assert that Abenomics is finally having the impact expected by the prime minister and his team. The PMI jumped to 55.1, the highest number registered in Japan in more than four years. The vast majority of that gain has come from expanded exports, which is likely the result of the yen’s changing value. The economic plan in Japan has resulted in a much lower currency value and that allows Japan to grab some of the market share lost to China over the years.

Does all this mean that happy days are here to stay? It probably does not, but there are some signals that these gains might continue under the right circumstances. Much of the growth this month seems anticipatory, as there has been a buildup of inventory and there has been more investment in capital equipment geared towards expansion and development of new markets. The sense is that 2014 will be better.

- Chris Kuehl, PhD, Armada Corporate Intelligence