NACM’s Credit Managers’ Index for August Shows Consistency

The August Credit Managers’ Index (CMI) from the National Association of Credit Management provides reason to be optimistic about conditions for the rest of the year and should help quell fears of inflation.

Consistency is generally a positive development when the overall readings have been positive, and this is the case for the August report of the (CMI) “The August CMI reflects a more optimistic future, but not an economy that is likely to surge,” said NACM Economist Chris Kuehl, PhD. “In comparing this month’s reading to that reported by the Federal Reserve, it is easier to understand the optimism about the last half of the year, as well as the worry about the impact of inflation fueled by some of this growth.”

Many of the CMI’s categorical readings showed no significant change.  Areas like capital utilization and capital expenditure stand in stark contrast to the wild gyrations in the overall growth rate as first quarter numbers were in recession territory at -2.1%, while the second quarter boasted a gain of over 4%,” Kuehl said.

Consistency in the unfavorable factors, especially, suggests that none of the economic concerns that started the year have been sufficiently serious to drag the economy down. “The financial distress at the start of the year has not triggered a wave of business failure, and now that seems even less likely,” Kuehl said.

Concerning the manufacturing and service sectors, neither saw significant change in the overall index reading, though individual factors fluctuated more widely.


For a full breakdown of the manufacturing and service sector data and graphics, view the complete August 2014 report at CMI archives may also be viewed on NACM’s website at

Credit Ratings Agencies Face Tough Regulation amid Rules Release

The Securities and Exchange Commission has unveiled mandates designed to increase transparency and accountability in the credit ratings process.

An SEC release noted the new requirements will address areas like conflicts of interest, disclosure of credit rating performance statistics, standards from training/experience/competence of credit analysts and procedures to protect integrity at agencies, most notably Moody’s Investors Service, Fitch Ratings and Standard & Poor’s (S&P). The various new rules will become effective during the 2015 calendar year, some as early as January 1.

The rules are part of the ongoing implementation of the Dodd-Frank Act, passed in response to various problems (quick ending of industry bubbles, widespread risk-taking, insufficient regulatory oversight) that led to last decade’s massive recession. Congress has often scapegoated the so-called “Big Three” ratings agencies, particularly S&P (which once reduced the US’s “AAA” credit rating and publicly chided Congress for partisan gridlock while doing it), for poor performance in the run-up to the crash.

Agency officials, while noting they are still reviewing and analyzing some of the new mandates, said they will comply in full and, in theory, support the idea of a facelift/update on rules of the road governing raters.  

- Brian Shappell, CBA, CICP, NACM staff writer

For a detailed information release and fact sheet released by the SEC, click here.

2014Q2 Small-Business Credit Conditions Improve to Record

The weather-related retreat in small business credit quality earlier this year is firmly in the review mirror, according to newly released quarterly statistics.

The Experian/Moody’s Analytics Small Business Credit Index, which tracks credit conditions at firms with fewer than 100 staffers, increased by 2.4 points to a level of 112.2 for the second quarter of 2014. Outstanding credit balances saw a 4.8% quarterly uptick, and delinquency rates fell to 9.3 % (previously 9.7%), said Experian/Moody’s analysts. The picture going forward also tends to be brighter than would have been thought even weeks ago, as tensions in the Middle East and Eastern Europe began to mount.

“Risk to the outlook have shifted to events overseas and have become less threatening,” the index’s executive summary noted. “The positives outweigh the negatives, and the blossoming economic recovery will benefit small business’ finances and, hence, credit quality in the second half of 2014 and beyond.”

Among the biggest positive movers in credit quality by industry from the first quarter of the year to the second were construction and transportation. The latter of which may still dubiously boast one of the highest industry delinquency rates, but its quarterly improvement was considered notable and promising by Experian/Moody’s.

Worth watching, however, is the sometimes massive difference in credit quality between various US regions, as some areas are showing major struggles.

- Brian Shappell, CBA, CICP, NACM staff writer

New Home Sales Stats Temper Last Week’s Housing Excitement

There was hope last week that a  a trio of real estate data releases from the public and private real sector, as well as from housing’s prominent trade association, showed the residential real estate sector – and construction along with it – was turning a corner. But Monday brought a slap of reality to remind everyone that housing, like it has been for most of the years since the start of last decade’s Great Recession, remains volatile.

The Commerce Department’s statistics on new single-family home sales tracked at 412,000 in July. That represented a surprising 2.4% drop from June, which had been revised upward since last month’s results. While sales remain above July 2013’s total by 12.3%, the latest statistics paint a considerably less rosy picture of the pace of the housing recovery than did recent analysis from the National Association of Home Builders, Wells Fargo, Home Depot, the National Association of Realtors (on existing-home sales only) and other monthly government-tracked economic indicators.

- Brian Shappell, CBA, CICP, NACM staff writer  

New Brazil Stimulus: Economy-Booster or Inflation-Driver

There is nothing like an election to focus the mind of the politician and so it has been in Brazil. The regime of Dilma Rousseff is in trouble and that has prompted an all-out effort to boost the fortunes of the economy with waves of cash.

The Brazilian central bank is dumping another $4.5 billion into the system through lowering the reserve ratios for the banks. It is not clear if this will really have the desired impact as access to money has not been the major issue for small and medium-sized business. The hope is that there will be a little bump in the economy, and that it will be sufficient to get support back in the Rousseff camp.

The real worry is that all this largesse will only worsen the already apparent inflation problem, something Brazil has been forced to combat numerous times in the past after a prosperous period. The target as far as inflation is concerned has been 4.5%, but the average over the last year has been between 6% and 8%. The expectation is that this surge of cash will drive the rate above 8% again.

- Armada Corporate Intelligence

Antitrust an Increasing Issue When Doing Business in China?

Antitrust can be difficult to navigate for credit managers and sales staff alike, especially when doing business internationally. The Chinese government is lending credibility to such beliefs as it seems to be lashing out at companies in various industries, most noticeably the important auto-parts supply chain.

In recent days, China’s National Development Reform Commission began targeting automotive parts manufacturers from Japan to the European Union to the United States, alleging mass breaches of antitrust law via price fixing. The worst of it to date seems to have fallen on Japanese manufacturers. A fine total exceeding $200 million (USD) was levied upon various competitors from Japan during the most recent round of enforcement. The highest individual fine for alleged price manipulation of parts in the supply chain went to Sumitomo Electric Industries.

The best known brand name to be hit in recent days for alleged antitrust violations was European pace-setter Mercedes-Benz, owned by Daimler AG. Those alleged violations were tied to both parts pricing and high maintenance costs in China.

It remains to be seen how far Chinese regulators will go: if they are targeting just a few key industries in the short term or if they are testing the waters for more widespread crackdowns on the argument that it is protecting its consumers. Enforcement, just or otherwise, has escalated noticeably since China revamped its antitrust statutes late last decade. 

- Brian Shappell, CBA, CICP, NACM staff writer

Construction Firms Get Triple-Play of Positive News

To say construction firms, whether seeking credit or providing it on products that go into building, have been desperate for consistent good news would be an understatement given the depths of the industry’s fall during the recession and slow rise since. This week brought the best batch of news in some time.

Within the last week, there has been positive news related to the residential real estate/construction industry from three very different sources: a government agency, a joint study produced by trade association and financial institution and a publicly-traded company’s earnings statement. It kicked off with news from the Commerce Department reporting that new, residential housing starts increased by more than 15% in July.

A monthly index compiled by the National Association of Home Builders and Well Fargo  focused on homebuilder confidence landed at a level of 55 in August, up two points from the previous month. That marks the second best level in seven months, with fewer threatening seasonal concerns ahead than were apparent during the year’s harsh first quarter.

Finally, Home Depot unveiled earnings this week that soundly beat market estimates. Company officials pointed to residential real estate, both new home construction and existing home renovation, as an impetus for the surge. Officials also predicted during the earnings call that revenues and profits would escalate at an even better pace during a majority of 2014’s second half because of this area. Given where housing has been since 2007, it’s not every week that such a rush of positive news comes in all at once.

- Brian Shappell, CBA, CICP, NACM staff writer

UK Growth Continuation a 180 from Returning EU Struggles

The euro zone may be struggling to get back on track as Germany falters, but the economy of the United Kingdom is still moving in the right direction even if it is not yet firing on all cylinders at this point.

Growth in the second quarter tracked at 0.8%, about as expected. There was a little more strength in the first quarter than had been registered earlier. The annual rate of growth has been upgraded from 3.1% to 3.2%, and that has become the envy of the Europeans. The majority of this growth has been from the service sector that has been booming at the low and high end of the scale while manufacturing is still at a somewhat below-par performance. Much of the issue with manufacturing is the weakness in Europe, as this has affected the demand for British output. The US has been buying more, but that didn’t rise to a level offset the loss from the European market.

Still, the UK numbers could almost be described as spectacular compared to the data coming from Europe, but that hardly means there is no fragility or precariousness for its ongoing recovery. The consumer in Britain is back to some degree, but the confidence surveys don’t suggest that this engagement can be counted upon to survive bad news. The trends are in the right direction for now. But there is fear is that the possibility of another round of austerity measures would reverse these gains --  that has many watching the Cameron government for clues even as The Bank of England appears determined to keep the economy growing with lower rates.

- Armada Corporate Intelligence

Fed Roundup: Auto Doing Fine, Rates Going Nowhere for Now

A new report out of the Federal Reserve Bank of New York illustrates that the automotive industry, which has long been fueling the success of the manufacturing sector, has yet to slow down. Meanwhile, historically low federal funds rates look to be safe, according to a Fed official based in Minnesota.

The New York Fed’s “Q2 2014 Household Debt and Credit” study illustrates that demand for auto loans continues to surge despite any concerns related to the economy. Auto loan debt increased by $30 billion since the first quarter of the year and by $91 billion since Q22013. “We observe continued strength in the auto loan market with the largest volume of originations since 2006,” said Donghoon Lee, senior economist at the New York Fed.

Meanwhile, this week’s speech by Federal Reserve Bank of Minneapolis President Narayana Kocherlakota originally intended to focus on community banking strayed into the greater economic outlook. Kocherlakota, a member of the Federal Open Market Committee, said the Fed was far from reaching its targets for price stability and remained confident that inflationary pressure will be low for a number of years. In that, he strongly hinted that the target for the federal funds rate – now at a historic rock-bottom range between 0% and 0.25% -- was unlikely to be to see an increase anytime within the next year. It reiterated predictions made in surprisingly transparent FOMC statements of the recent past.

- Brian Shappell, CBA, CICP, NACM staff writer

Latin America Now a Business Player in Eastern European Dispute

The trickledown effect of the Ukraine-Russian conflict may not have shown up fully in monthly economic growth statistics, but it seems to be paving the way for a shakeup, especially for trade. As the European Union and the United States continue to levy sanctions on Russia for its perceived (yet not proven) role in the growing unrest in Ukraine, several Latin American nations, at the protest of EU leaders, seem to be preparing to fill the trade void.

The EU publicly announced plans to meet with several South American nations, notably Latin powerhouses Brazil and Chile, in the hopes that such nations will not directly help Russia avoid the pain of the EU/US sanctions amid allegations of defiance and sovereign violations. The problem is that there is money to be made as a result of Russia becoming an increasingly sizable trading partner, so much so that Ecuador’s president bluntly noted that it doesn’t need US or EU permission to become more active in trade with Russia. Argentina, which has a long past of not allowing conflicts in Europe affect business decisions, has also noted a keen interest in the monetary opportunity and an unsurprising disinterest in worrying about how the US and EU leadership view the move.

Meanwhile, the growth outlook in Germany appears ready to sour at a rapid pace even as the latest round of statistics showed strength in what is undeniably Europe’s standard-bearing economy—and perhaps for good reason. The German economy depends heavily on exports, and Russia has been among its most important destinations for the goods its companies produce. Russia also has been providing nearly half of all energy/fuel Germany imports, which has the potential to become a massive issue once winter months arrive. It will be doubly apparent if Germany does not experience a second consecutive historically mild winter. If “as Germany goes, so goes Europe” is held with any regard, the conflict and international political gamesmanship could threaten what has been a long-awaited rebound in the European growth trajectory.

- Brian Shappell, CBA, CICP, NACM staff writer

Negative PA Mechanic’s Lien Change Go in Affect in Four Weeks

With the summer signing by Pennsylvania Gov. Tom Corbett, changes proposed by the state's SB 145 will go into effect on Sept. 7 and usher in some pretty significant changes for subcontractors and material suppliers working on residential projects immediately thereafter. NACM Secured Transaction Services’ Chris Ring and some prominent Pennsylvania attorneys characterize the new law as a lose-lose for subs and suppliers pretty much all around.

In essence, the change affects the dollar amount a subcontractor or material supplier can file a lien on, basing it on the amount of the funds owed from the property owner to the general contractor. The subcontractor’s lien rights will now be limited to the amount still owed to the contractor, general contractor.  Nicholas Krawec, Esq., of Bernstein-Burkley PC, noted that amount could, and usually will be, less than the amount owed to the sub or supplier.  He added that “it’s a big deal” for subs and suppliers. But it’s even worse if the homeowner has made full payment.

“Essentially, subcontractors and material suppliers have no lien rights if the property is or is intended to be used as the residence of the owner or subsequent to occupation by the owner or a tenant of the owner,” said Ring.

Homeowners (Re: voters in what is a state election year) have long complained that they should not be dragged into disputes between general contractors and subs/suppliers over payments. However, it was one of the only methods of recourse subs and suppliers could seek in the state.

- Brian Shappell, CBA, CICP, NACM staff writer
An extended version of this story with additional analysis and so much more is available now at NACM's Secured Transaction Services website ( to STS customers. All that is needed is your STS login information. 

ISM: Service Sector Data Improves Dramatically

The latest service sector statistics from the Institute of Supply Management (ISM) is registering strength not seen since the recession started to loom in 2008. The reading is now at 58.7. Just as construction led the way in early 2008, it seems to be doing so in July 2014.

It almost goes without saying, but as services go, so goes the overall economy. As important as the manufacturing sector is to the US and to the export sector, it accounts for just a little less than 20% of the total national GDP. The other 80% is services of one kind or another.The health care sector alone is about 25% of the economy, and then there are the other big categories like retail, construction, professional services and so on.

Almost everything about this month’s ISM data comes as a pleasant surprise. The July surge was not seen as likely given some of the recent headwinds in the economy, but there were gains in areas that most had not expected. Of the 18 industries that are surveyed, only one fell back (utility sector). Of the other 17 surveyed, the biggest jump was in construction, shocking analysts. The question now is whether that activity is an anomaly or a trend that might manifest for the rest of the year after previous assessments predicted construction in 2014 would be stable at best.

Meanwhile, the New Orders Index rose from 61.2 to 64.9 in June, the highest reading since 2005. That is a very big deal and quite possibly the best news from the index as a whole. The service sector readings for the most recent NACM Credit Managers’ Index (CMI) were also good this month -- that bodes well for the future given that the CMI often predicts what is going to happen in the Purchasing Managers' Index later. It is hard to overestimate the importance of gains in the service side of the economy given its role in both GDP and employment. There will be little chance of a resurgent consumer without growth here, as this is where the jobs are and will be. The sense is that only a few sectors are carrying the load right now, and these are the traditionally volatile sectors.

- Armada Corporate Intelligence

Commerce Dept: US Trade Deficit Down on Domestic Autos, Energy

The US trade deficit fell to its second-lowest level of the year in June, mostly on the sizable shift in import activity.

The US trade deficit in June tracked at $41.5 billion, down from the previous month’s $44.7 billion, according to the US Census Bureau and Bureau of Economic Analysis. Total June exports reached $195.9 billion, a $0.1 billion increase, and imports registered at $237.4 billion, a near-$3 billion decline.

The US imported far less in automotive vehicles, parts and engines as well as in petroleum products, amid a continued surge in domestic energy production. Consumer products also showed a sizable dip in demand for the month, particularly with items like smart phones.

The US saw its biggest trade surpluses continue with Hong Kong, at $3.1 billion. Other nations with which the US holds a surplus are Australia, Singapore and Brazil. China, at $30.1 billion and climbing, continues to dominate the list of nations where the US finds a trade deficit. The European Union comes in at second with only slightly more than one-third that amount, and Japan lags behind in third.

- Brian Shappell, CBA, CICP, NACM staff writer

No Joy in European Manufacturing PMI Levels

There are some long faces in the European Union these days as the latest Purchasing Managers’ Index numbers show that there has been virtually no gain in terms of manufacturing data. If there is any good news, it is that the PMI data didn’t get appreciably worse, but there had been some hope that last month’s gain would be built on this month.

Current levels leave little room for dealing with setbacks later this year. The gains were also uneven between the various members of the euro zone, a pattern that has become very familiar of late. The German economy continues to hold its own, but France is sinking even faster than before, and Italy has had its worst reading in over a year.

The reason for the decline is both easy to identify and complex. There has yet to be a surge in consumer confidence, and that is not shocking to anyone. The threats to the regional economy have not abated and news that unnerves the investor, the business community and the consumer occurs frequently.

Moreover, this round of PMI data doesn’t even reflect the impact of the escalation of tension in the Eastern Ukraine dispute with Russian separatists following the infamous shooting down of a commercial airliner there -- most assume that the real impact will be felt next month. And there is a sense now that Europe may suffer more from the new sanctions than Russia, at least in the short term, if the Russians restrict the release of gas/oil products that many European countries are dependent upon during winter months.

On top of those concerns, its export destination are not providing as much of a light at the end of the tunnel as was expected. The US is more insular than ever and is not growing at its traditionally fast level, China is just now starting to get its growth engine started, but the expectation is for not for growth it has posted in recent years, and the key emerging market states that seemed so promising a few years ago are all locked in their own economic malaise.

- Armada Corporate Intelligence
Check out this week's edition of eNews for more are Markit Economic's roundup of PMI data for the latest period. eNews is available each week late Thursday afternoon at and via email.