November CMI Builds on Recent Optimism

The latest Credit Managers’ Index (CMI), published by the National Association of Credit Management (NACM), built upon the optimism from October’s CMI, when respondents shook off the government crisis in Washington to deliver the index’s best figures in over a year and a half. November’s readings, available now on NACM's website, pushed to a high not seen yet this decade and signify a newfound stability in businesses’ attitudes on the economy as well as a greater sense of security in their investments.

“There is a real sense that credit is more available than it has been in some time, which bodes well for the coming year,” said NACM Economist Chris Kuehl, PhD. “This is not to say that a shock to the economy would not force a decline, but more resilience has formed than has been the case in some time.”

Though there were negative seasonal issues at play within some favorable factors, sales almost single-handedly kept that side of the index somewhat stable. The noteworthy improvement was experienced in the unfavorable factors index (rejections of credit applications, accounts placed for collection). Also noteworthy is that CMI statistics suggest consumers, despite some studies that indicate the contrary, have gained enthusiasm.

“As retail sales and traffic numbers suggest, people are saying one thing, but doing another,” Kuehl said of increasing buying activity. He added that overall message from the unfavorable factors is that business does not seem to be in real distress at the moment. In short, most businesses are heading into 2014 on stable ground.

To view the full November CMI report, visit

Case-Shiller Quarterly Figures Up Again

The latest numbers from the S&P/Case-Shiller Home Price Indices are encouraging for most of those directly involved in the U.S. housing market and their downstream suppliers. In all, 13 of the 20 major markets tracked showed year-over-year gains though there was a bit of a pause stemming from weakness during the final month of the third quarter.

In statistics through September unveiled by S&P (Standard & Poor’s) Dow Jones Tuesday, the S&P/Case-Shiller 10-City Composite and 20-City Composite each rose by 13.3% from 2012’s third quarter. Among the biggest gainers, albeit from historically depressed levels, were the Las Vegas, San Francisco, San Diego and Los Angeles markets. All four exceeded 20% annual increases and were the only metropolitan areas to do so above that level. Twelve cities posted double-digit improvements in all.

“The second and third quarters of 2013 were very good for home prices,” said David Blitzer, chairman of the index committee at S&P Down Jones Indices. He added that year-over-year improvements have reached the best level since February 2006.

One piece of concern, however, comes from the reality that monthly gains in 19 of the 20 markets were smaller, often by about half, in September than in August. Among the weakest markets in that regard were Charlotte, the only metro area to report a percentage loss between August and September, as well as Denver, Dallas, Cleveland and Chicago. Those five were also among the weakest eight in year-over-year growth, according to S&P/Case-Shiller. In addition, hot growth in the West has sparked newfound whisper of potential price bubble emergence. This is of concern because of the damage infamously caused by overheated and unsustainable conditions in some markets, notably in Florida, California and Nevada, during the run-up to the national and global recession last decade.

- Brian Shappell, CBA, CICP, NACM staff writer

Ukraine Nixes EU Deal Amid Reported Russian Pressuring

Last week, NACM Economist Chris Kuehl, PhD talked about Eastern Europe’s need to embrace further reform efforts to have any hope of closing the gap between it and the traditional power economies. It appears that Ukraine has taken a monumental step backwards after abruptly ending negotiations, apparently at the urging of Putin Russia, with the European Union after five year.

The EU and Ukraine had been working toward an “association,” though not as welcome a reception as other member states have received, and a free trade agreement that would have represented a significant step forward. Instead, Ukrainian leadership opted to hitch its economic wagons to Moscow. The Putin government had reportedly been pressuring Ukraine, independent from the Soviet Union for just over two decades, through blocking the flow of manufactured goods and other tactics in an effort to dull its interest in forging the EU deal.

The pull-out by Ukraine’s leaders sparked a rash of protests from a populous that still remembers the difficulties of life under Soviet rule. Now, it would be an understatement to say the future of one of Eastern Europe’s most important economies has been thrown into a state of utter upheaval. And, for a country that has been known to perform poorly in terms of adhering to credit terms, it has made the idea of granting credit to companies based there all the more risky.

- Brian Shappell, CBA, CICP, NACM staff writer

Can Eastern Europe Ever Catch Up?

The latest assessment of the economies of Eastern Europe from the European Bank for Reconstruction and Development (EBRD) is not very encouraging. The report flatly states that nations in Eastern Europe, on the whole, will remain far behind their western counterparts for a very long time unless there is a strong re-commitment to the reforms undertaken in the years right after these states made the break from Soviet influence.

The EBRD acknowledges that a big part of the stagnation problem today is that cheap credit emanating from the western states has dried up. The report also places considerable blame on the policy retreats that have taken place all over the region. The assertion is that economic and financial issues caused the governments to fall back into old patterns. That meant slowing down privatization in an attempt to preserve jobs, restricting the actions of local banks and backing the kind of white elephant projects that were the hallmark of the old days.

The nations of the eastern half of Europe are only barely connected to the rest of the continent. The trade between them has slowed, and there has been no replacement for that western connection. Some have tried to reassert their connections to Russia, which is becoming less and less of a wealthy nation these days, itself. Most have done very little to engage in trade with Asia or Latin America. Even the United States has been mostly untouched as a trade partner.

- Chris Kuehl, PhD, Armada Corporate Intelligence

Industries to Watch: Health Care

Few topics in American news media would realistically have the power to knock talk of the government shutdown almost completely off the pages and out of the public consciousness. But the epic failure of the advance of the Affordable Care Act (“Obamacare”) and associated rollout of the website did just that.

Concerns that the cost to businesses of offering insurance to every America haven’t gone away, nor has the debate become any less peppered with vitriol. That is especially the case among lawmakers, and it isn’t likely to change soon, said NACM Economist Chris Kuehl, PhD. That notwithstanding, the fact that a myriad of problems were unearthed at the time when Americans were supposed to be able to enroll for health care plans online has pushed the timetable back and will only continue to do so. That’s dangerous for product and service providers, according to Kuehl and Deborah Thorne, Esq., a partner in the Chicago office of Barnes & Thornburg LLP.

“There have been a lot of complaints,” Thorne said. “Hospitals and institutions thought it would be all organized by now. They made decisions on things like expansion thinking it would be up and running. I’m hearing people say ‘maybe we shouldn’t have done that,’ right now.” That said, the problems haven’t shown up in companies’ respective bottom lines yet, but Thorne believes the numbers could start to bear this out by the next quarter.

In addition, there is the possibility that companies will be exposed to fraud as a result of the new health care law. According to Thorne, much higher demand could mean more fraud. “Things fall through the cracks,” she said. “With all these people eligible that didn’t have access before, there may be people who take advantage of the system. I think it opens the door. There certainly will be opportunities for fraud within the increased volume.”

In short, if selling on terms to a doctor’s group, hospital, manufacturer or service provider that is highly dependent on various aspects of the law for business, credit professionals need to know who these customers are, how they are faring and what their future prospects look like.

- Brian Shappell, CBA, CICP, NACM staff writer

Texas Supreme Court Hears Arguments in Case on "No Damages for Delay" Clauses

On November 6, 2013 the Texas Supreme Court heard oral arguments in Zachry Construction Company v. Port of Houston Authority of Harris County, Texas, a case that could have severe ramifications for contractors and subcontractors state-wide.

At issue is whether or not an owner can include clauses in their contracts that essentially protect them from ever having to pay delay damages, even when the owner's actions are intentionally or unintentionally responsible for the delay. In other words, the Texas Supreme Court will eventually rule whether "no damages for delay" clauses in construction contracts extend to delays caused, willfully, by the owner.

A lower court, the 14th Court of Appeals of Texas, ruled that they did in August 2012: according to the American Subcontractor's Association (ASA), the court found that Zachry Construction Co. could not recover damages related to a delay that was caused by the owner's breach of contract because of the presence of a "no damages for delay" clause. The court argued that "parties strike the deal they choose to strike and, thus, voluntarily bind themselves in the manner they choose."

According to Chris Ring of NACM's Secured Transaction Services (STS) "general contractors, subcontractors and material suppliers need to pay particular attention to and support ASA's arguments to overturn the 'no damage for delay ruling,' for if this ruling stands, an owner has the ability to willfully and negligently delay a project with limited or no recourse from downstream contractors and suppliers."

Subscribers to the STS Lien Navigator receive late-breaking updates on construction law changes in all 50 states and Canada. To be one of the first people to know when the Texas Supreme Court actually issues a ruling in this case, learn more about the Lien Navigator and STS' other services here.

- Jacob Barron, CICP, NACM staff writer

ECB Cuts Main Rate on Deflation Concerns, but Effect on Corporates Expected to Be Negligible

The European Central Bank (ECB) made a surprise cut to its benchmark interest rate last week, reducing the 0.5% main rate, which was already at a record low, by another 25 basis points to 0.25%.

The move arrives on the heels of diminishing inflation in the euro zone. In October, inflation fell to an annual rate of 0.7%, whereas the ECB has aimed to keep inflation at 2%. While lower inflation might not sound like such a bad thing, especially for cash-poor consumers, October's decline could suggest a greater risk of deflation, which some say poses a greater threat.

"In the euro zone as a whole, sovereigns, banks and households are still heavily indebted, which means that deflation poses a higher risk to recovery than inflation," said AIG Chief Country Risk Economist Carolyne Spackman. "When consumers expect falling prices, they tend to hold off discretionary purchases, which erodes corporate profits and puts downward pressure on both wages and government revenues. Deflation is pernicious in that it makes it even harder for debtors to service their debts, and it can also trigger the need to post additional collateral against secured loans."

In announcing the decision, ECB President Mario Draghi noted that the rate cut aligned with the Bank's prior guidance regarding inflation, but warned that low inflation could be a lasting issue. "We may experience a prolonged period of low inflation, to be followed by a gradual upward movement towards inflation rates below, but close to, 2% later on," he said. "Accordingly, our monetary policy stance will remain accommodative for as long as necessary. It will thereby also continue to assist the gradual economic recovery as reflected in confidence indicators up to October."

Spackman agreed that the response of Draghi and his cohorts suited the severity of the deflation threat. "Easing monetary policy is appropriate to prevent deflation from setting in, and this helps to understand why the ECB cut interest rates after inflation was only 0.7% in October," she said, "but with the re-fi rate at 0.25%, there is little further room to cut, especially as the deposit rate is already 0%."

While some of the latest news from the euro zone has given some analysts reason for optimism, particularly Germany's manufacturing numbers and Spain's outlook upgrade, the ECB's future efforts to stimulate the economy will almost have to focus on extending liquidity to banks rather than cutting rates any further. Still, whatever steps Draghi chooses to take in 2014 and beyond, the results might not trickle down to non-financial companies. "Banks are still focused on balance sheet repair, and the increased liquidity may not be transmitted to firms," Spackman said. "The rate cut will do little to stimulate lending, and as long as this trend continues, it means that credit managers have to be vigilant, because customers in the euro zone may continue to have difficulty accessing credit."

- Jacob Barron, CICP, NACM staff writer

Opposition, Obstacles to Trade Pact Escalate

Criticism is mounting about the lack of transparency in the negotiations for the Trans-Pacific Partnership (TPP), a trade agreement that represents a greater interest in Southeastern Asia on the part of notable nations in North and South America, among others.

Part of an alleged TPP draft unearthed by WikiLeaks and printed in Australia’s Sydney Morning Herald in the last week suggested plans to strengthen the stronghold of U.S.- and Japanese-based pharmaceutical and computer technology multinationals, as well as impose tougher restrictions and heavier enforcement on copyright/intellectual property “infringement” of various kinds, all of which could mean a spike in prices, especially outside of the U.S., for products in such areas. Additionally, some analysts argue that some portions of the plan amount to limits on Internet free speech.

Meanwhile, two letters made public in the last week from Congressional groups, one from within each party, called for more power, involvement and “checks and balances” on the part of federal lawmakers in the trade negotiation process. A November 8 letter drafted by a dozen Democrats noted the administration “must ensure that Congress plays a more meaningful role” in the reauthorization of the Trade Promotion Authority (TPA), also known as “fast track” authority. President Barack Obama wants this in order to ease and speed up the TPP agreement, as well as another free trade agreement with the European Union. The last TPA agreement ended in 2007.

The U.S. Congress, known throughout the world for its partisan-fueled inability to come to nearly any significant long-term policy agreement, in its attempt to garner more power and involvement in talks that already include nearly a dozen other nations, does not bode well for speedy enactment of a trade pact that once appeared to be on the fast track.  The TPP also includes Vietnam, Singapore, Malaysia, Peru, Chile, New Zealand and Australia.

- Brian Shappell, CBA, CICP, NACM staff writer

Devastation in the Philippines

The latest super storm to capture the world’s attention slammed in the Philippines and will likely become the most expensive and tragic of any storm to hit anywhere even though it struck a part of the country that was less populated. At one point it was aimed squarely at Manila, and that would have caused destruction that would be incalculable.

Economically, the Philippines was having a very strong economic year. Growth rates were the envy of the region and the world. That growth is now likely to falter for a few quarters. Again, the good news is that most of the business sector of the country was spared, but handling the recovery will tax the economy beyond what it can easily stand. The level of international aid will have a lot to do with that recovery, but so far the response has been meager given the magnitude of the crisis.

- Chris Kuehl, PhD, Armada Corporate Intelligence

S&P Slaps France with Credit Downgrade

Though news out of Spain and Germany in recent days has painted a more hopeful picture of recovery prospects in the European Union, Friday’s French credit rating downgrade illustrates that many issues still complicate the potential of a consistent rebound.

Standard & Poor’s (S&P) lowered France’s long-term foreign and local currency sovereign credit ratings to “AA” from “AA+.” Though not new critiques, S&P rationalized the decision by attacking the French government’s approach to budgetary and structural reforms to taxation. That, along with weakness in manufacturing and labor markets, “is unlikely to substantially raise France’s medium-term growth prospects,” S&P noted. “We see France’s fiscal flexibility as constrained by successive governments’ moves to increase already-high tax levels and what we see as the government’s inability to significantly reduce total government spending.”  It added that double-digit unemployment would likely continue acting as a drag on growth and reform efforts through 2016.

However, S&P set France’s outlook at stable on Friday, noting that the probability of another change in the French sovereign ratings was unlikely (less than one-in-three) within the next two years.

- Brian Shappell, CBA, CICP, NACM staff writer

ECB Cuts Main Rate on Low Inflation Figures

The European Central Bank (ECB) made a surprise cut to its benchmark interest rate today, reducing the 0.5% main rate, which was already at a record low, by another 25 basis points to 0.25%.

The move arrives on the heels of diminishing inflation in the euro zone. In October, inflation fell to an annual rate of 0.7%, whereas the ECB has aimed to keep inflation at 2%. While lower inflation might not sound like such a bad thing, especially for cash-poor consumers, October's decline could suggest a greater risk of deflation, which can eat into business profits and contribute to higher unemployment.

Joblessness continues to be one of Europe's most nagging economic problems. "Real incomes have benefited recently from generally lower energy price inflation," said ECB President Mario Draghi. "This being said, unemployment in the euro area remains high, and the necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity."

In announcing the decision, Draghi noted that the rate cut aligned with the Bank's prior guidance regarding inflation, but warned that low inflation could be a lasting issue. "We may experience a prolonged period of low inflation, to be followed by a gradual upward movement towards inflation rates below, but close to, 2% later on," he said. "Accordingly, our monetary policy stance will remain accommodative for as long as necessary. It will thereby also continue to assist the gradual economic recovery as reflected in confidence indicators up to October."

Indeed, some of the latest news from the euro zone has given some analysts reason for optimism, particularly Germany's manufacturing numbers and Spain's outlook upgrade. Still, the ECB's sudden decision to cut its rates in reaction to Europe's most recent inflation figures could end up undermining some of the confidence on which Draghi and his colleagues are eager to build.

Stay tuned to NACM's blog and eNews for further updates and analysis on this story.

- Jacob Barron, CICP, NACM staff writer

German Manufacturing Foreshadows European Improvement

German manufacturing continued to regain its trademark strength in October, which is of massive importance to the recovery of the European Union economically. It’s noteworthy on the world stage as well because of the historic importance of German exporting activity outside of Europe to its economic performance.

“October data signaled a solid increase in new work received by services providers,” financial research firm Markit said in a statement Wednesday tied to the release of the German and Eurozone Composite PMI results. “The latest expansion was the most marked since January and widely linked to improving business and consumer confidence.” Markit added there was a surge in new orders in October and “the strongest business outlook for [the last] six months” in Germany.

Also of note, was manufacturing growth in the United Kingdom. The European economy is by no means healthy or out of the woods yet. Still, news of increasing orders and activity in Germany and the United Kingdom, as well as Austria and the Netherlands, is being treated as a potential marker of a turnaround for the beleaguered region.

- Brian Shappell, CBA, CICP, NACM staff writer

Court Ruling Could Open Up Door for Stop Notice Statute Challenges in Western States

Mississippi's Fifth Circuit Court of Appeals' decision last month that rendered its Stop Notice statute unconstitutional could very well foster challenges in at least five other states with similar laws on the books. That includes California.

"I'm sure some GC will take a shot at it," said James Reed, Esq., partner at Baird Williams & Greer LLP. However, there could be enough statutory language distinctions that would likely render such challenges unsuccessful.

The case is of interest in Mississippi and anywhere a challenge is presented because, in many instances, the only means of placing any payment pressure on debtors is to file a Stop Notice. Without this option, material suppliers and subcontractors are more likely to be reluctant in extending credit for construction projects.

- Brian Shappell, CBA, CICP, NACM staff writer

MLBS customers can find deeper analysis on this story and many more affecting the construction industry in the Lien Navigator’s “News Makers” section at

Spain Gets First Upgrade in Years

Days after exiting its deep and lengthy recession, Spain also earned itself an outlook upgrade, the first in a long time, by one of the three major U.S. credit rating agencies.

Noting that Spain emerged from its recession well ahead of the predicted pace, Fitch Ratings revised Spain’s outlook from negative to stable. Spain's actual rating, however, remained unchanged. Though noting some weakness in medium-term growth prospects because of troubled industry sectors and high unemployment, the list of encouraging signs was surprisingly lengthy on the part of Fitch. Noted positives included the nation addressing its debt ratio problems at a faster-than-expected pace, improved credit financing conditions, noticeable adjustment following the bursting of its credit and real estate bubble and, perhaps most importantly, a more sustainable policy track.

“Authorities have made significant reforms of the labour market, pension system, fiscal framework and financial sector,” said Fitch in its statement. “The pace of reform is likely to slow in 2014-15 as external pressures ease and 2015 elections loom, but the effort made to date should put the economy on a surer footing.”

Last week, the Iberian nation finally provided long-absent hope in the form of its first quarterly economic growth since 2011's first quarter. Spain's gross domestic product in the third quarter increased by 0.1% over the previous quarter. Lackluster as the quarterly increase may seem, the bump could foreshadow real hope of long-awaited stabilization and, perhaps, a true rebound within a few years. After all, Spain has posted a quarterly GDP gain only five times since 2009, when the recession and EU debt crisis was just beginning.

- Brian Shappell, CBA, CICP, NACM staff writer

Exports Stay Healthy in August

The United States exported $189.2 billion worth of goods and services in August 2013, slightly lower than July's total of $189.3 billion and June's all-time record high of $190.5 billion, according to data released by the Commerce Department's Bureau of Economic Analysis this week.

Export-Import Bank Chairman and President Fred Hochberg singled out manufacturing as one particular slice of the economy that continues to grow through increases in international sales. "Our exporters continue to drive the U.S. economy and employ more American workers in high-paying, skilled export-related jobs, especially in the manufacturing sector," he said. "Every month brings us closer toward achieving President Obama's ambitious goal of doubling U.S. exports by 2015."

While that goal might still remain just out of reach, exports from the U.S. have continued to be a remarkably resilient economic figure despite continued global uncertainty and seemingly biennial fiscal crises here at home. Over the last 12 months, exports of goods and services have totaled $2.2 trillion, which is 42.2% above the levels of exports in 2009 and signifies growth at an annualized rate of 10.1% compared again to 2009.

Among major export markets, meaning countries with at least $6 billion worth of annual imports of U.S. goods, the list of countries registering the largest annualized increases in U.S. goods purchases when compared to 2009 is dominated by Latin American economies. Panama (28.8%), Peru (20.9%), Chile (20.3%), Colombia (19.3%), Argentina (17.8%) and Ecuador (17.6%) have all registered regular increases in goods purchases from U.S. sellers.

- Jacob Barron, CICP, NACM staff writer