NACM has extended the deadline for the Elevator Speeches contest to 5pm EST Dec. 7, 2018. So if you missed out on earning .1 road map point toward your designation plus a chance to win a free registration to NACM’s Credit Congress & Expo in Aurora, Colorado, on May 19-22, 2019, fret not—you still have until Dec. 7.
To enter, submit your best elevator pitch about your job as a credit professional—you’ll have 30 seconds or less, roughly 100 words, to sell your professional career—to bcm@nacm.org with the subject line “elevator speech." Submissions must be sent electronically as an attachment or in the body of an email. The winner will be published in the February 2019 issue of Business Credit.
Terms and conditions apply. For the complete list of contest rules, visit https://nacm.org/elevator-speeches.
This is a reminder that blogs have been moved to https://bcm.nacm.org/index.php/blog. For more regular updates, visit that new site or the Business Credit app on your mobile device.
—Christie Citranglo, editorial associate
Earn Roadmap Points and a Chance for Free Registration to Credit Congress: Elevator Speeches Contest
Only 11 days remain to submit your elevator speech for NACM’s annual Elevator Speeches contest. The best speech—selected by NACM’s editorial staff—will receive a free registration to NACM’s Credit Congress & Expo in Aurora, Colorado, on May 19-22, 2019. Each participant also receives .1 roadmap point toward an NACM designation, regardless of whether the submission wins.
To enter, submit your best elevator pitch about your job as a credit professional—you’ll have 30 seconds or less, roughly 100 words, to sell your professional career—to bcm@nacm.org with the subject line “elevator speech” by Nov. 30, 2018. Submissions must be sent electronically as an attachment or in the body of an email. The winner will be published in the February 2019 issue of Business Credit.
Terms and conditions apply. For the complete list of contest rules, visit https://nacm.org/elevator-speeches.
This is a reminder that blogs have been moved to https://bcm.nacm.org/index.php/blog. For more regular updates, visit that new site or the Business Credit app on your mobile device.
—Christie Citranglo, editorial associate
To enter, submit your best elevator pitch about your job as a credit professional—you’ll have 30 seconds or less, roughly 100 words, to sell your professional career—to bcm@nacm.org with the subject line “elevator speech” by Nov. 30, 2018. Submissions must be sent electronically as an attachment or in the body of an email. The winner will be published in the February 2019 issue of Business Credit.
Terms and conditions apply. For the complete list of contest rules, visit https://nacm.org/elevator-speeches.
This is a reminder that blogs have been moved to https://bcm.nacm.org/index.php/blog. For more regular updates, visit that new site or the Business Credit app on your mobile device.
—Christie Citranglo, editorial associate
NACM Blogs Have Moved
NACM will be moving all blog posts—including STS blog updates—to bcm.nacm.org, where you will now have access to eNews, blog updates, Chris Kuehl's briefs, Business Credit magazine articles, Week in Review and more, all in one place.
Access this content by visiting NACM's homepage or add bcm.nacm.org to your bookmarks for quick access.
If browsing on your phone is more your thing, fret not: All of this content will be in NACM's Business Credit app, available for download on the Apple App Store and Google Play.
—NACM editorial staff
Access this content by visiting NACM's homepage or add bcm.nacm.org to your bookmarks for quick access.
If browsing on your phone is more your thing, fret not: All of this content will be in NACM's Business Credit app, available for download on the Apple App Store and Google Play.
—NACM editorial staff
First Blockchain Syndicated Loan a Success
During the week of Nov. 5, the first-ever loan between three countries was transmitted via blockchain. A total of $150 million in a syndicated loan for Red Eléctrica, the Spanish grid operator, was sent over a private blockchain network BBVA, which also worked with partners MUFG of Japan and BNP Paribas of France.
This marks an innovation in the development of blockchain, further refining the exchange of money through digital means. The timeline of the loan exchange was also time-stamped, showing a clear progression for just how quickly blockchain transactions are performed. The syndicated loan process can be done in a matter of days compared to the usual couple of weeks, and loan signing and documentation processing can be done in just a few minutes.
The blockchain network for this loan was protected with user codes, ensuring the transfer was secure and safe. BBVA not only proved using blockchain for syndicated loans saves time, it also reduced internal costs for clients. All the back-office operations were completed by the blockchain, speeding up the process and the need for tedious labor.
In many nations, governmental regulation of blockchain remains sparse if not nonexistent, and Spain has been working toward more secure blockchain structures throughout 2018. Now that Spain has successfully transferred a loan via blockchain, perhaps more innovations will occur in the near future.
—Christie Citranglo, editorial associate
This marks an innovation in the development of blockchain, further refining the exchange of money through digital means. The timeline of the loan exchange was also time-stamped, showing a clear progression for just how quickly blockchain transactions are performed. The syndicated loan process can be done in a matter of days compared to the usual couple of weeks, and loan signing and documentation processing can be done in just a few minutes.
The blockchain network for this loan was protected with user codes, ensuring the transfer was secure and safe. BBVA not only proved using blockchain for syndicated loans saves time, it also reduced internal costs for clients. All the back-office operations were completed by the blockchain, speeding up the process and the need for tedious labor.
In many nations, governmental regulation of blockchain remains sparse if not nonexistent, and Spain has been working toward more secure blockchain structures throughout 2018. Now that Spain has successfully transferred a loan via blockchain, perhaps more innovations will occur in the near future.
—Christie Citranglo, editorial associate
Chinese Exports, Imports Boom in October, Despite US Trade War
The U.S.-China trade debacle has yet to cease, but according
to a CNBC report on Nov. 1, Chinese exports and imports flourished in October,
reaching a trade surplus of $31.78 billion with the U.S. Despite economists’
predictions of an overall $35 billion trade surplus, the country’s General
Administration of Customs reported it was nearly $1 billion less.
Chinese exports and imports improved over October 2017’s
numbers, rising 15.6% and 21.4%, respectively. In a Reuters poll, economists
predicted only an 11% growth in the country’s exports in addition to a mere 14%
growth in imports.
“Many economists say the phenomenon is mostly due to exports
benefiting from increased orders before the tariff’s hit, but the figures are
likely to show stress in the months ahead,” CNBC states.
“The government would say
confidence is the issue and the trade war is the trigger, so that’s why we
should blame the trade war,” added Independent Economist Andy Xie in an interview
with CNBC. “It’s an excuse to not do anything (to solve the problem, and)
rather to frame this as part of the big trade war.”
Year-over-year, September’s export
and import numbers in China weren’t as successful as last month’s results;
however, they did improve over 2017, growing 14.5% and 14.3%, respectively.
—Andrew Michaels, editorial
associate
The 2018 Election Results on Public Construction Funding
The Nov. 6 election saw record voter turnouts across the country, making history in gubernatorial and Congressional elections. Results flooded in, changing the balance of power in the House of Representatives and shaking up statewide legislation. The construction industry saw changes too, primarily in terms of funding public projects. Several states voted to: use gas taxes to fund projects, fund water systems projects, fund new transportation construction efforts and more. Some of the biggest changes to construction funding came out of Florida, New Jersey, California, Missouri and Colorado.
Two counties in Florida—Broward and Hillsborough Counties—voted to pay more for transportation and infrastructure. Broward County voters passed a 30-year tax increase that will fund a new bus service, begin construction of bike lanes and build road drainage projects in flood-prone areas. Other transportation-focused construction initiatives will also receive funds. Hillsborough County voted to increase county sales tax by 1% to pay for road improvements.
New Jersey voted to borrow $500 million to improve water systems in public schools and increase funding for K-12 security measures. Other projects include funding vocational schools and expanding educational efforts outside of the construction sphere.
California voted “no” on Proposition 6, meaning the state will continue to fund public construction projects through fuel taxes. These taxes are part of an effort to fund a $52 billion state infrastructure initiative.
Unlike Florida, New Jersey and California, Missouri and Colorado voted against funding public construction projects.
Missouri voters rejected Proposition D, meaning the state’s fuel tax will not be increasing by 10 cents per gallon. The funding would have been used for road and bridge construction. This result does not come as a surprise to most voters as the most recent gas tax for construction funding in Missouri was passed more than 20 years ago.
Colorado rejected not one but two proposals—Propositions 109 and 110—to fund public projects to “Fix Our Damn Roads” and increase taxes by 0.62% to fund $6 billion for multimodal projects, upgrades to roads, bridges and highways.
—Christie Citranglo, editorial associate
For more construction news, visit NACM's Secured Transaction Services.
Two counties in Florida—Broward and Hillsborough Counties—voted to pay more for transportation and infrastructure. Broward County voters passed a 30-year tax increase that will fund a new bus service, begin construction of bike lanes and build road drainage projects in flood-prone areas. Other transportation-focused construction initiatives will also receive funds. Hillsborough County voted to increase county sales tax by 1% to pay for road improvements.
New Jersey voted to borrow $500 million to improve water systems in public schools and increase funding for K-12 security measures. Other projects include funding vocational schools and expanding educational efforts outside of the construction sphere.
California voted “no” on Proposition 6, meaning the state will continue to fund public construction projects through fuel taxes. These taxes are part of an effort to fund a $52 billion state infrastructure initiative.
Unlike Florida, New Jersey and California, Missouri and Colorado voted against funding public construction projects.
Missouri voters rejected Proposition D, meaning the state’s fuel tax will not be increasing by 10 cents per gallon. The funding would have been used for road and bridge construction. This result does not come as a surprise to most voters as the most recent gas tax for construction funding in Missouri was passed more than 20 years ago.
Colorado rejected not one but two proposals—Propositions 109 and 110—to fund public projects to “Fix Our Damn Roads” and increase taxes by 0.62% to fund $6 billion for multimodal projects, upgrades to roads, bridges and highways.
—Christie Citranglo, editorial associate
For more construction news, visit NACM's Secured Transaction Services.
E-Payments Make Another Stride Forward for B2B Transactions
Another initiative to push e-payments in and paper checks out of the business-to-business (B2B) sphere emerged recently, this new method using libraries in a Business Payments Network (BPN). Visa and Billtrust announced an open buyer and supplier payments platform designed to digitize the payment chain between businesses.
Most consumers have switched from cash and checks to debit cards and e-payments, but B2B payments have largely resisted this change: two-thirds of all business transactions are still done through paper mail. Banks and payment companies have been attempting to innovate the process recently, catching the B2B world up to speed.
Throughout the last 20 or so years, Billtrust compiled information from roughly 2,000 suppliers in the U.S., tracking how each supplier accepts e-payments (by card or ACH). After it’s determined how the supplier will be paid, the accounts payable (AP) provider—a bank or an independent software company—will send the instructions through the BPN to pay the supplier by the preferred method.
While this effort has taken a couple of decades to launch and checks still remain relevant in B2B payments, the use of this BPN will not make any significant changes overnight. But this method may inspire businesses moving forward into the e-payment and digital world.
—Christie Citranglo, editorial associate
Freight Shipments Fall in Q3, Spending Sees Increase
The effects of Hurricane Florence and tariffs on imported goods impacted 2018’s Q3, seeing a 5.2% quarterly decline in freight shipments, according to the U.S. Bank Freight Payment Index. Year-over-year, freight shipments fell by 1.1%.
Even with these drops, freight spend still increased by 13.5%, year-over-year. Constrained trucking capacity limited the amount of goods that were shipped, but it is likely the jump in freight spending comes from higher-than-average transaction prices.
Clean up and restoration from Hurricane Florence still continues in the southeastern United States, which will likely boost sales and freight shipments for relief efforts. The demand for labor and supplies is predicted to balance out the freight industry in the areas affected by Florence as the year comes to an end, but it may not see an immediate bounce back.
"As trucking often leads the broader economy, the decreases seen in the U.S. Bank Freight Payment Index suggest economic growth may have peaked and may decelerate in the fourth quarter and beyond," Bob Costello, chief economist for American Trucking Associations (ATA), said in the press release. "Despite the sequential decreases in freight shipments and spending last quarter, the national truck market remains solid and capacity tight."
—Christie Citranglo, editorial associate
Even with these drops, freight spend still increased by 13.5%, year-over-year. Constrained trucking capacity limited the amount of goods that were shipped, but it is likely the jump in freight spending comes from higher-than-average transaction prices.
Clean up and restoration from Hurricane Florence still continues in the southeastern United States, which will likely boost sales and freight shipments for relief efforts. The demand for labor and supplies is predicted to balance out the freight industry in the areas affected by Florence as the year comes to an end, but it may not see an immediate bounce back.
"As trucking often leads the broader economy, the decreases seen in the U.S. Bank Freight Payment Index suggest economic growth may have peaked and may decelerate in the fourth quarter and beyond," Bob Costello, chief economist for American Trucking Associations (ATA), said in the press release. "Despite the sequential decreases in freight shipments and spending last quarter, the national truck market remains solid and capacity tight."
—Christie Citranglo, editorial associate
Super Typhoon Yutu and Recovery Efforts in US Territories
One of the strongest storms to hit the U.S. since 1935 struck western U.S. territories Oct. 25, leaving more than 100 injured and one dead, according to KUAM News. Relief efforts continue, now with help from federal funds as a Major Disaster Declaration for Super Typhoon Yutu was confirmed Oct. 27. With such devastating damage, rebuilding efforts will include construction, which will likely trigger a larger customer base and much-needed attention in the Commonwealth of the Northern Mariana Islands and Guam where the storm hit hardest.
Yutu comes just a month after Typhoon Mangkhut, another serious storm that hit Guam and the Philippines. Recovery efforts for Yutu are expected to be slow predicted Brandon Aydlett, a meteorologist with the National Weather Service. Especially given the lack of Western media attention throughout the week of Oct. 25 and onward, construction efforts may be overlooked but are still necessary.
"This is the worst-case scenario. This is why the building codes in the Marianas are so tough," Aydlett said in a CBS News story. "This is going to be the storm which sets the scale for which future storms are compared."
When working with customers in U.S. territories, like U.S. states, all laws vary. Guam last updated its Mechanic’s Lien Law in 2009, repealing the 1962 law that was previously in place. To learn more about doing business in Guam and other U.S. territories during times of natural disasters, visit NACM’s Secured Transactions’ Lien Navigator.
—Christie Citranglo, editorial associate
For more construction news, visit NACM's Secured Transaction Services.
Yutu comes just a month after Typhoon Mangkhut, another serious storm that hit Guam and the Philippines. Recovery efforts for Yutu are expected to be slow predicted Brandon Aydlett, a meteorologist with the National Weather Service. Especially given the lack of Western media attention throughout the week of Oct. 25 and onward, construction efforts may be overlooked but are still necessary.
"This is the worst-case scenario. This is why the building codes in the Marianas are so tough," Aydlett said in a CBS News story. "This is going to be the storm which sets the scale for which future storms are compared."
When working with customers in U.S. territories, like U.S. states, all laws vary. Guam last updated its Mechanic’s Lien Law in 2009, repealing the 1962 law that was previously in place. To learn more about doing business in Guam and other U.S. territories during times of natural disasters, visit NACM’s Secured Transactions’ Lien Navigator.
—Christie Citranglo, editorial associate
For more construction news, visit NACM's Secured Transaction Services.
Somber Credit Managers’ Index Starts Q4
After a string of solid results in NACM’s Credit Managers’ Index
(CMI) starting this past spring, the predictive index is at its worst
output since April. The October CMI reading dropped nearly two points to
54.5 from 56.4 in September.
“This is not an emergency situation to be sure as these numbers are still solidly in the mid-50s, but it isn’t the trend that had been hoped for at this point in the year,” said NACM Economist Chris Kuehl, Ph.D.
Much of the deterioration was found in the favorable factors, with sales declining more than six points to its lowest level in 2018. Overall, the favorables sank to 61.6.
Within the unfavorable factors, bankruptcies slipped below a score of 53 for the first time since May 2017. The overall unfavorable index dipped into contraction territory (score below 50) for the first time since April.
“This was a fairly profound slide which comes at an awkward time. This is the time of year services should be carrying the load, but it isn’t at the moment, while manufacturing generally slides until the first of the year,” concluded Kuehl.
The full October 2018 CMI report will be published Oct. 31 on NACM’s website.
-Michael Miller, managing editor
“This is not an emergency situation to be sure as these numbers are still solidly in the mid-50s, but it isn’t the trend that had been hoped for at this point in the year,” said NACM Economist Chris Kuehl, Ph.D.
Much of the deterioration was found in the favorable factors, with sales declining more than six points to its lowest level in 2018. Overall, the favorables sank to 61.6.
Within the unfavorable factors, bankruptcies slipped below a score of 53 for the first time since May 2017. The overall unfavorable index dipped into contraction territory (score below 50) for the first time since April.
“This was a fairly profound slide which comes at an awkward time. This is the time of year services should be carrying the load, but it isn’t at the moment, while manufacturing generally slides until the first of the year,” concluded Kuehl.
The full October 2018 CMI report will be published Oct. 31 on NACM’s website.
-Michael Miller, managing editor
Moody’s: US Oil Sector Debt Levels ‘Unsustainable’
The current debt levels of U.S. oilfield and drilling (OFS) companies
is unsustainable over the long term. According to Moody’s Investors
Service, OFS companies need a “substantial improvement in cash flow.”
"U.S. oilfield services and drilling companies' high debt levels will continue to constrain their credit quality in 2019 and beyond," said Sreedhar Kona, a Moody's senior analyst. "The largest firms are significantly better positioned to regain their credit strength next year than the smaller ones, though the threat of balance sheet restructuring will persist, particularly for the latter."
Smaller and less diversified OFS companies face the most risk, while larger firms such as Schlumberger and Halliburton stand to benefit the most from an OFS recovery. Over the past 10 years OFS credit quality as a sector weakened. The average debt to EBITDA ratio increased more than 4.5 times in 2017, states Moody’s.
“A decade ago, earnings were growing more quickly than debt, but the reverse was true between 2008 and 2014, then in 2015-16 cash flow shrank by more than 30%, with a consequent tripling in leverage,” concluded the release.
-Michael Miller, managing editor
"U.S. oilfield services and drilling companies' high debt levels will continue to constrain their credit quality in 2019 and beyond," said Sreedhar Kona, a Moody's senior analyst. "The largest firms are significantly better positioned to regain their credit strength next year than the smaller ones, though the threat of balance sheet restructuring will persist, particularly for the latter."
Smaller and less diversified OFS companies face the most risk, while larger firms such as Schlumberger and Halliburton stand to benefit the most from an OFS recovery. Over the past 10 years OFS credit quality as a sector weakened. The average debt to EBITDA ratio increased more than 4.5 times in 2017, states Moody’s.
“A decade ago, earnings were growing more quickly than debt, but the reverse was true between 2008 and 2014, then in 2015-16 cash flow shrank by more than 30%, with a consequent tripling in leverage,” concluded the release.
-Michael Miller, managing editor
Large Firms in UK Still Pay Late Despite Legislation
The Federation of Small Businesses (FSB) in the U.K. announced this week that larger firms that do not pay their suppliers on time should be stripped of government contracts. Late payments have caused nearly 50,000 companies annually to shut down, according to The Guardian. The firms owe tens of billions of pounds, and the closures of these companies have led to economic costs amounting to around 2.4 billion pounds.
Before U.K. giant Carillion went bankrupt, the company signed off on the Prompt Payment Code, which Carillion now stated does not have a real impact on the late payments landscape. FSB also said sanctions against larger firms should be enacted, including a ban from government businesses. Eighty-four percent of FSB member firms reported being paid late regularly, and at least one third of firms said that 25% of payments arrive later than the agreed upon terms.
“One member told me he was put on terms of 180 days. Our members are providing the working capital of big companies,” said FSB National Chairman Mike Cherry in a Financial Times report. Cherry also said despite the several government initiatives to solve late payments, late payments have only gotten worse.
—Christie Citranglo, editorial associate
Before U.K. giant Carillion went bankrupt, the company signed off on the Prompt Payment Code, which Carillion now stated does not have a real impact on the late payments landscape. FSB also said sanctions against larger firms should be enacted, including a ban from government businesses. Eighty-four percent of FSB member firms reported being paid late regularly, and at least one third of firms said that 25% of payments arrive later than the agreed upon terms.
“One member told me he was put on terms of 180 days. Our members are providing the working capital of big companies,” said FSB National Chairman Mike Cherry in a Financial Times report. Cherry also said despite the several government initiatives to solve late payments, late payments have only gotten worse.
—Christie Citranglo, editorial associate
Metals Market Reacts to Death of Saudi Journalist, China’s Economic Dip
The global equity market is reacting to geopolitical tensions as the price of copper fell amid the death of Saudi Arabian journalist Jamal Khashoggi and the slowing demand of copper in China, according to a recent article by Reuters. Benchmark copper fell a total of 0.7%, now costing a total of $6,196 per ton.
Today, Turkey’s president stated the death of Khashoggi was “savagely planned” by Saudi Arabia, likely in response to Khashoggi’s comments on the Saudi government and exercise of free speech through the press. With such political unrest between the two countries, the price of copper fell. “Metals are reacting to what is happening in equity markets right now,” said Capital Economics senior commodities economist Caroline Bain in the Reuters piece. As tensions escalate, the market will continue to react.
China has also contributed to the decline in the metals market. The country experienced the slowest growth in the third quarter since the global financial crisis. Chinese officials did announce an expansion of targeted measures that will calm financing issues following this drop in the third quarter; however, investors are not convinced such a plan will actually work.
—Christie Citranglo, editorial associate
Today, Turkey’s president stated the death of Khashoggi was “savagely planned” by Saudi Arabia, likely in response to Khashoggi’s comments on the Saudi government and exercise of free speech through the press. With such political unrest between the two countries, the price of copper fell. “Metals are reacting to what is happening in equity markets right now,” said Capital Economics senior commodities economist Caroline Bain in the Reuters piece. As tensions escalate, the market will continue to react.
China has also contributed to the decline in the metals market. The country experienced the slowest growth in the third quarter since the global financial crisis. Chinese officials did announce an expansion of targeted measures that will calm financing issues following this drop in the third quarter; however, investors are not convinced such a plan will actually work.
—Christie Citranglo, editorial associate
Sears Seeking Financial Help, Vendors Reacting
Sears Holdings Corp. Chairman Eddie Lampert is in the process of
finding a financing partner for the company's bankruptcy filing.
According to Reuters, Lampert's private equity firm, ESL Investments,
has talked with investment firm, Cyrus Capital Partners LP, about
sharing the financial burden of a $300 million loan.
Meanwhile, some of Sears' vendors have distanced themselves, states Bloomberg. Vendors have also stopped shipments to Sears, which became the latest former brick-and-mortar retail giant to file for Chapter 11 bankruptcy earlier this month.
Some suppliers are asking for better payment terms including advanced payments, but Sears is looking for terms that will be more in their favor, according to Bloomberg.
Just one day after Sears' bankruptcy filing, swimwear vendor In Gear Fashions filed a lawsuit in Cook County Circuit Court against Sears, Lampert, ESL and Sears' subsidiary Kmart, according to the Chicago Sun Times. The swim vendor claims Sears owes them nearly $840,000 and is in breach of contract. In Gear Fashions states payments stopped Oct. 12 despite more than $182,000 being owed over four installments between Sept. and Oct. 25.
Sears has not turned a profit since 2011; however, in a company blog updated in June 2017, Lampert said, "Across our entire vendor base, we have always met our payment obligations and are confident that the steps we are taking to improve our financial strength and reduce our operating losses will ensure that we will continue to be a strong business partner for many years to come."
The post was in reference to the annual stockholders meeting and an issue with power tool manufacturer One World.
-Michael Miller, managing editor
Meanwhile, some of Sears' vendors have distanced themselves, states Bloomberg. Vendors have also stopped shipments to Sears, which became the latest former brick-and-mortar retail giant to file for Chapter 11 bankruptcy earlier this month.
Some suppliers are asking for better payment terms including advanced payments, but Sears is looking for terms that will be more in their favor, according to Bloomberg.
Just one day after Sears' bankruptcy filing, swimwear vendor In Gear Fashions filed a lawsuit in Cook County Circuit Court against Sears, Lampert, ESL and Sears' subsidiary Kmart, according to the Chicago Sun Times. The swim vendor claims Sears owes them nearly $840,000 and is in breach of contract. In Gear Fashions states payments stopped Oct. 12 despite more than $182,000 being owed over four installments between Sept. and Oct. 25.
Sears has not turned a profit since 2011; however, in a company blog updated in June 2017, Lampert said, "Across our entire vendor base, we have always met our payment obligations and are confident that the steps we are taking to improve our financial strength and reduce our operating losses will ensure that we will continue to be a strong business partner for many years to come."
The post was in reference to the annual stockholders meeting and an issue with power tool manufacturer One World.
-Michael Miller, managing editor
Existing-Home Sales and Housing Starts Fall in September, Decreasing Consistently
Sales continue to fall for previously owned homes in the U.S., and September showed the sixth-straight monthly drop in sales, according to Bloomberg. Sales of these homes have fallen to the lowest level since 2015, and this consistent drop is the longest since 2014.
Despite a lack of desire for purchasing older homes, U.S. housing starts also fell in September, with the major declines coming from the Southern U.S.—specifically in the path of Hurricane Florence. The declines in both housing starts and sales for existing homes may only be temporary, but with the mortgage rates continuing to increase, housing may become too expensive to keep up the demand for building.
September also marks the fifth month of prices rising less than 5% year over year. With mortgage rates climbing and continuing dips in sales and construction, the demand for housing may continue to fall looking ahead. Since hurricane season will be ending in November, the housing starts may decrease until close to the end of 2018.
—Christie Citranglo, editorial associate
For more construction news, visit NACM's Secured Transaction Services.
Despite Billions of Dollars in Debt, Toys ’R’ Us Lenders Seek to Reboot the Brand
After filing for bankruptcy in June, Toys ’R’ Us announced its doors may be reopening—still without promise to pay its former employees and the small promise of paying a mere 22 cents on the dollar it owed creditors after the company filed for bankruptcy. Lenders plan to sell the intellectual property of Toys ’R’ Us instead of continuing with a bankruptcy auction, which lenders are hoping will lead to a reboot of the chain.
According to National Real Estate Investor, Toys ’R’ Us lenders plan to open stores globally, and they are working with potential partners to fund the projects as they develop new ways to rebrand one of the most iconic children’s stores.
But with creditors already receiving so little back from the company and with about 30,000 employees still without their promised severance packages, Toys ’R’ Us’ comeback may not prove to be fruitful. Before filing for bankruptcy, Toys ‘R’ Us was more than $5 billion in debt. It’s unclear whether a rebrand can save the company once more, but credit managers should continue to remain cautious on whether to extend credit to the future Toys ’R’ Us.
—Christie Citranglo, editorial associate
International Monetary Fund, World Bank Bring Global Financial System Risks to Light
The International Monetary Fund (IMF) and the World Bank are gathering this week to discuss the state of the global financial system, which has many worried because of emerging markets and heightened trade tensions. The meetings are held in Bali and include a review of current risks to the world’s financial well-being.
On Oct. 10, Reuters reported “easy financial conditions,” such as high debt levels and “stretched” asset valuations, are fueling economists’ concerns, following IMF’s report that tightening financial conditions have caused near-term risks to increase. While economies may not feel pressure at the moment, IMF capital markets director Tobias Adrian said in the article that high inflation could cause interest rates to skyrocket when least expected.
“In the report, the IMF said economic growth appears to have peaked in some major economies while the gap between advanced countries and emerging markets was widening,” Reuters states. “The IMF on [Oct. 9] cut its global growth forecasts due to an escalating U.S.-China trade war and growing financial strains on emerging markets.”
Economic conditions in the U.S. are holding strong, despite an interest rate increase by the Federal Reserve in September and another expected to follow in December. Meanwhile, slow conditions are seen in the euro area and Japan, Reuters noted, with moderate conditions in China—a status that could change depending on the country’s trade dispute with the U.S. The IMF recommends global regulators “keep in place measures” enacted during the financial crisis a decade ago as a precaution.
—Andrew Michaels, editorial associate
On Oct. 10, Reuters reported “easy financial conditions,” such as high debt levels and “stretched” asset valuations, are fueling economists’ concerns, following IMF’s report that tightening financial conditions have caused near-term risks to increase. While economies may not feel pressure at the moment, IMF capital markets director Tobias Adrian said in the article that high inflation could cause interest rates to skyrocket when least expected.
“In the report, the IMF said economic growth appears to have peaked in some major economies while the gap between advanced countries and emerging markets was widening,” Reuters states. “The IMF on [Oct. 9] cut its global growth forecasts due to an escalating U.S.-China trade war and growing financial strains on emerging markets.”
Economic conditions in the U.S. are holding strong, despite an interest rate increase by the Federal Reserve in September and another expected to follow in December. Meanwhile, slow conditions are seen in the euro area and Japan, Reuters noted, with moderate conditions in China—a status that could change depending on the country’s trade dispute with the U.S. The IMF recommends global regulators “keep in place measures” enacted during the financial crisis a decade ago as a precaution.
—Andrew Michaels, editorial associate
September’s Strong Service Sector Hits 21-Year High
September was good to the U.S. service sector, where activity reached a two-decade high as the economy begins the fourth quarter. The Institute for Supply Management’s (ISM) non-manufacturing activity index indicated more hiring was behind last month’s results that were last seen in August 1997.
Following Federal Reserve Chairman Jerome Powell’s remarks earlier this week that the economic outlook is “remarkably positive” as well as last week’s interest rate hike, Reuters reported economists anticipate yet another rate increase in December, the fourth hike in 2018. Economists said in the Oct. 3 article they anticipate ongoing growth; however, there are still concerns among companies in the service sector, including “capacity, logistics and the uncertainty with global trade.”
“Industries are bumping against capacity constraints in a robust economy and tightening labor market conditions,” Reuters states. “Companies are increasingly reporting difficulties finding qualified workers to meet demand, leading to delays in delivering goods and services.”
The ISM findings are complementary with NACM’s Credit Managers’ Index (CMI) September report, showing an overall boost in favorables such as sales and dollar collections. September typically has “quite a lot of activity in the service sector,” said NACM Economist Chris Kuehl, Ph.D., who noted that retail usually thrives the most, while construction dwindles in the colder months. According to CMI reports since 2015, the service sector experienced growth three out of five times during September.
“The movement is subtle to be sure, but at least it is heading in the right direction, and for two
months in a row,” Kuehl said in his comparison between the September 2018 and September 2017 CMI reports. “Dare we hope for a longer trend?”
—Andrew Michaels, editorial associate
Following Federal Reserve Chairman Jerome Powell’s remarks earlier this week that the economic outlook is “remarkably positive” as well as last week’s interest rate hike, Reuters reported economists anticipate yet another rate increase in December, the fourth hike in 2018. Economists said in the Oct. 3 article they anticipate ongoing growth; however, there are still concerns among companies in the service sector, including “capacity, logistics and the uncertainty with global trade.”
“Industries are bumping against capacity constraints in a robust economy and tightening labor market conditions,” Reuters states. “Companies are increasingly reporting difficulties finding qualified workers to meet demand, leading to delays in delivering goods and services.”
The ISM findings are complementary with NACM’s Credit Managers’ Index (CMI) September report, showing an overall boost in favorables such as sales and dollar collections. September typically has “quite a lot of activity in the service sector,” said NACM Economist Chris Kuehl, Ph.D., who noted that retail usually thrives the most, while construction dwindles in the colder months. According to CMI reports since 2015, the service sector experienced growth three out of five times during September.
“The movement is subtle to be sure, but at least it is heading in the right direction, and for two
months in a row,” Kuehl said in his comparison between the September 2018 and September 2017 CMI reports. “Dare we hope for a longer trend?”
—Andrew Michaels, editorial associate
Retailers Struggling to Hire for the Holidays
The holiday shopping season is approaching quickly as shoppers will soon begin flocking to department stores and small businesses in the coming months. A busy shopping season calls for more retail hiring; however, CNBC reports not all retailers will successfully fill their vacant positions. Demands for higher wages lure some employees away from low-paying jobs, while those who remain are left to pick up the slack.
On Oct. 1, the news outlet shared findings from global consulting group Korn Ferry that first looked back to the 2017 holiday season when 23% of retailers were unable to reach their desired number of temporary hires—expectations that will likely worsen this year. While nearly 70% of the participating 20 major U.S. retailers want to hire similar employee numbers, CNBC states, just over 60% are instead giving permanent employees more hours to close the gap.
“There are more jobs out there than there are people looking for them. ... It's a hustle to find the talent,” Korn Ferry Senior Partner Craig Rowley said in the article. “Retailers are asking their existing employees if they can work more because they're already trained. This year more than ever we're seeing employers getting workers to work more hours.”
Rowley also told CNBC that hiring is the main speed bump for the 2018 shopping season, sales being troubling last year.
—Andrew Michaels, editorial associate
On Oct. 1, the news outlet shared findings from global consulting group Korn Ferry that first looked back to the 2017 holiday season when 23% of retailers were unable to reach their desired number of temporary hires—expectations that will likely worsen this year. While nearly 70% of the participating 20 major U.S. retailers want to hire similar employee numbers, CNBC states, just over 60% are instead giving permanent employees more hours to close the gap.
“There are more jobs out there than there are people looking for them. ... It's a hustle to find the talent,” Korn Ferry Senior Partner Craig Rowley said in the article. “Retailers are asking their existing employees if they can work more because they're already trained. This year more than ever we're seeing employers getting workers to work more hours.”
Rowley also told CNBC that hiring is the main speed bump for the 2018 shopping season, sales being troubling last year.
—Andrew Michaels, editorial associate
‘To No One’s Surprise,’ Fed Hikes Interest Rates
As predicted, the Federal Reserve followed through with its plan to hike interest rates on Sept. 26, increasing rates by a quarter point, while anticipating economic growth for the remainder of 2018 and into next year. The hike was of no surprised to anyone, said NACM Economist Chris Kuehl, Ph.D., who said the latest hike marks the eighth increase since 2015.
“The expectation is that Fed Chief Jerome Powell will reiterate the strategy touted all year: another quarter-point hike in December and perhaps three more in 2019,” Kuehl said. “The inflation threat is a little more pronounced than it was, but the bigger issue for the Fed has been trying to get rates up high enough so a future cut would make a difference. It is not that the Fed is expecting an imminent recession, but should there be one, they don’t have much ammunition with which to fight it.”
Although many economists believe economic growth will slow beginning in 2019, the Fed held its previous forecast of 1.8%, CNBC reported. Meanwhile, expectations were heightened for the next three months with a growth forecast of 3.1%. The forecast then dwindles in 2019 and 2020 to 2.5% and 2%, respectively.
President Donald Trump said at a press conference that he was displeased with the Fed’s decision to hike interest rates, saying he would “rather pay down debt or do other things, create more jobs.” Another interest rate hike is expected in December.
“I’m worried about the fact that they seem to like raising interest rates,” Trump said. “We can do other things with the money.”
—Andrew Michaels, editorial associate
“The expectation is that Fed Chief Jerome Powell will reiterate the strategy touted all year: another quarter-point hike in December and perhaps three more in 2019,” Kuehl said. “The inflation threat is a little more pronounced than it was, but the bigger issue for the Fed has been trying to get rates up high enough so a future cut would make a difference. It is not that the Fed is expecting an imminent recession, but should there be one, they don’t have much ammunition with which to fight it.”
Although many economists believe economic growth will slow beginning in 2019, the Fed held its previous forecast of 1.8%, CNBC reported. Meanwhile, expectations were heightened for the next three months with a growth forecast of 3.1%. The forecast then dwindles in 2019 and 2020 to 2.5% and 2%, respectively.
President Donald Trump said at a press conference that he was displeased with the Fed’s decision to hike interest rates, saying he would “rather pay down debt or do other things, create more jobs.” Another interest rate hike is expected in December.
“I’m worried about the fact that they seem to like raising interest rates,” Trump said. “We can do other things with the money.”
—Andrew Michaels, editorial associate
Food, Chemical Products Amid Latest Chinese Retaliatory Tariffs on US
Tackling trade talks remains difficult for the U.S. and China as more of President Donald Trump’s tariffs go into effect today, placing a 10% tax on $200 billion of Chinese products such as furniture and appliances. According to CNBC, the tariff is expected to increase to 25% by the end of the year. This latest imposition was met with retaliation by Chinese President Xi Jinping, who said China plans to implement taxes on about $60 billion worth of U.S. imports.
The back-and-forth debacle between the world’s two largest economies has been ongoing since July when Trump put tariffs on $34 billion worth of Chinese goods, mainly industrial parts. On Sept. 24, CNBC reported that Beijing denied the U.S. president’s invitation to Washington, DC to discuss trade practices. Xi Jinpings’ recent tariffs announcement would put taxes on more than 5,200 imports, including a 10% levy on liquefied natural gas, coffee and several edible oils as well as a 5% levy on frozen vegetables, cocoa powder and chemical products.
U.S. Secretary of State Mike Pompeo recently told Fox News that if China does retaliate, Trump would implement even more tariffs on $267 billion worth of Chinese imports.
Although it is much too early to determine the effects of these tariffs, previous ones by the U.S. are showing negative impacts on certain industries. NBC News released an article last week that explored how the steel and aluminum tariffs are doing more harm than good for the U.S. auto industry. In the article, the Center for Automotive Research states car sales could drop by 2 million a year, causing a loss of 715,000 jobs and $62 billion of U.S. GDP.
“The impact could mean more than just higher costs,” the article states. “A number of medium-sized and smaller parts suppliers could be forced out of business, unable to afford the cost of relocating their operations back to the U.S.,” creating product shortages.
—Andrew Michaels, editorial associate
The back-and-forth debacle between the world’s two largest economies has been ongoing since July when Trump put tariffs on $34 billion worth of Chinese goods, mainly industrial parts. On Sept. 24, CNBC reported that Beijing denied the U.S. president’s invitation to Washington, DC to discuss trade practices. Xi Jinpings’ recent tariffs announcement would put taxes on more than 5,200 imports, including a 10% levy on liquefied natural gas, coffee and several edible oils as well as a 5% levy on frozen vegetables, cocoa powder and chemical products.
U.S. Secretary of State Mike Pompeo recently told Fox News that if China does retaliate, Trump would implement even more tariffs on $267 billion worth of Chinese imports.
Although it is much too early to determine the effects of these tariffs, previous ones by the U.S. are showing negative impacts on certain industries. NBC News released an article last week that explored how the steel and aluminum tariffs are doing more harm than good for the U.S. auto industry. In the article, the Center for Automotive Research states car sales could drop by 2 million a year, causing a loss of 715,000 jobs and $62 billion of U.S. GDP.
“The impact could mean more than just higher costs,” the article states. “A number of medium-sized and smaller parts suppliers could be forced out of business, unable to afford the cost of relocating their operations back to the U.S.,” creating product shortages.
—Andrew Michaels, editorial associate
Consumer Demand, Not Trade War, Among CFOs Top Concerns
Risk assessment is part of the daily grind for any business, so when the U.S. stirred up trade controversies with other countries, economists saw American businesses’ concerns rise. While many believed the trade war was among these worries, a new CNBC survey suggests there are worse fears in the business community, specifically consumer demand.
On Sept. 20, CNBC released its Global CFO Council quarterly survey that ranked the “biggest external risk factor currently facing” businesses. In the first quarter of 2018, U.S. trade policy was the most concerning to CFOs at nearly 30%, but has since dropped to 10.4%. At that time, consumer demand was worrisome to about 21% of CFOs and steadily increased to almost 46% in the third quarter. In addition to U.S. trade policy, concerns of cyberattacks and over-regulation also decreased further into the year, while central bank policy increased minimally.
“The council’s global economic outlook remains finely balanced, with only two of 11 countries or regions—Brazil, and Latin America excluding Brazil—seen as ‘declining,’” CNBC reported. “All other areas were rated as ‘stable,’ except for the United States, which is ‘improving.’”
The majority of respondents in the third quarter noted that the technology sector will most likely see the biggest growth in the next six months, followed by the construction sector. The costs of labor are also expected to increase the most in those six months, as costs of raw materials and capital steadily rise.
—Andrew Michaels, editorial associate
On Sept. 20, CNBC released its Global CFO Council quarterly survey that ranked the “biggest external risk factor currently facing” businesses. In the first quarter of 2018, U.S. trade policy was the most concerning to CFOs at nearly 30%, but has since dropped to 10.4%. At that time, consumer demand was worrisome to about 21% of CFOs and steadily increased to almost 46% in the third quarter. In addition to U.S. trade policy, concerns of cyberattacks and over-regulation also decreased further into the year, while central bank policy increased minimally.
“The council’s global economic outlook remains finely balanced, with only two of 11 countries or regions—Brazil, and Latin America excluding Brazil—seen as ‘declining,’” CNBC reported. “All other areas were rated as ‘stable,’ except for the United States, which is ‘improving.’”
The majority of respondents in the third quarter noted that the technology sector will most likely see the biggest growth in the next six months, followed by the construction sector. The costs of labor are also expected to increase the most in those six months, as costs of raw materials and capital steadily rise.
—Andrew Michaels, editorial associate
Little Economic Impact Expected From Hurricane Florence
Natural disasters take a physical toll on impacted
communities, the most recent example being the severe flooding from Hurricane
Florence in North Carolina. With destruction and devastation comes economic
hardship, but according to Moody’s Analytics, Hurricane Florence is expected to
have a minimal impact on the U.S. economy. The latest hurricane hit the East
Coast late last week and is responsible for at least 32 deaths as of Tuesday.
On Sept. 18, USA Today
reported Moody’s analysis of the storm’s impact on the country’s economic
growth, which predicts a drop of one to two tenths of a percentage point this
third quarter. If economists’ earlier predictions are correct, the economy
could still see expansion of about 3.7%; however, Oxford Economics anticipates
slightly worse conditions, with a decline of two to three tenths of a percentage
point. Moody’s and Oxford currently expect damage totals of $16 to $20 billion
and $30 to $40 billion, respectively.
“Most of the lost economic output is likely to be made up in
the fourth quarter as consumers make purchases they deferred and replace damaged
vehicles, and repairs begin on effected homes and businesses,” USA Today reported.
Oxford Chief U.S. Economist Greg Daco said in the article
that drops are possible in retail and services as well as manufacturing. While
consumers may spend less on clothing, toys and jewelry, restaurants are likely
to still see businesses. Hurricane Florence may also put a dent in industrial
production in addition to overall employment, the latter of which is likely to
bounce back in October or November.
Lumber Prices Rise as Hurricane Florence Nears East Coast
As the East Coast prepares for Hurricane Florence to make
landfall late Thursday or early Friday, the construction industry is already
seeing the storm’s costly effects through lumber prices. According to Prosales magazine, the impending
hurricane and any that follow are expected to bring a 10% lumber price hike that
may last roughly two months.
On Sept. 11, Prosales reported this prediction after talking with lumber buyers in the construction industry, one of whom based the 10% hike on recent cost increases for Southern yellow pine. High lumber prices mean there’s a low supply because hurricanes not only close lumber mills, but also impact employees who focus their attention on repairing and/or rebuilding their own homes.
“Lumber prices look to be heading higher and are still sitting at levels that have hardly ever been reached before (with the exception of earlier this year),” Forest Economic Advisors-Canada Managing Director Russ Taylor wrote in his Wood Markets report last month. “As we’ve indicated for some years now, the North American lumber supply chain remains fragile, and any disruptions will only cause more price volatility.”
Despite increased costs of lumber, Associated Builders and Contractors, Inc. (ABC) reported Sept. 12 that construction material prices actually dipped about half a percent in August from the previous month. However, year-over-year (YOY), prices were much higher, coming in at just over 8%. Softwood lumber prices were among those materials to decrease—9.6% month-over-month—but were about 5% higher YOY.
ABC, in conjunction with Bureau of Labor Statistics data, said a likely reason behind the softwood lumber price drop is “a weakening single-family residential construction market” brought on by labor shortages, high land prices and high mortgage rates.
“In the final analysis, the falling input prices trend likely won’t continue,” ABC Chief Economist Anirban Basu said in a statement. “Inflation expectations have shifted, with purchasers of construction services now anticipating price increases and, therefore, more willing to accommodate them.”
—Andrew Michaels, editorial associate
On Sept. 11, Prosales reported this prediction after talking with lumber buyers in the construction industry, one of whom based the 10% hike on recent cost increases for Southern yellow pine. High lumber prices mean there’s a low supply because hurricanes not only close lumber mills, but also impact employees who focus their attention on repairing and/or rebuilding their own homes.
“Lumber prices look to be heading higher and are still sitting at levels that have hardly ever been reached before (with the exception of earlier this year),” Forest Economic Advisors-Canada Managing Director Russ Taylor wrote in his Wood Markets report last month. “As we’ve indicated for some years now, the North American lumber supply chain remains fragile, and any disruptions will only cause more price volatility.”
Despite increased costs of lumber, Associated Builders and Contractors, Inc. (ABC) reported Sept. 12 that construction material prices actually dipped about half a percent in August from the previous month. However, year-over-year (YOY), prices were much higher, coming in at just over 8%. Softwood lumber prices were among those materials to decrease—9.6% month-over-month—but were about 5% higher YOY.
ABC, in conjunction with Bureau of Labor Statistics data, said a likely reason behind the softwood lumber price drop is “a weakening single-family residential construction market” brought on by labor shortages, high land prices and high mortgage rates.
“In the final analysis, the falling input prices trend likely won’t continue,” ABC Chief Economist Anirban Basu said in a statement. “Inflation expectations have shifted, with purchasers of construction services now anticipating price increases and, therefore, more willing to accommodate them.”
—Andrew Michaels, editorial associate
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