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

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.

Andrew Michaels, editorial associate

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

New Funding Option for UK SMEs

A new funding option is in the future for small- and medium-sized enterprises (SMEs) in the United Kingdom. New laws put forward by Small Business Minister Kelly Tolhurst this week will "make it easier for small businesses to access invoice financing," according to a release from the government. This will in turn provide a one-billion-pound boost to the economy.

"The U.K.'s 5.7 million small businesses are the backbone of our economy and central to our modern Industrial Strategy, with more than 1,000 starting up every day," said Tolhurst in the release.

Some smaller businesses accept contracts from larger firms with language stating invoice finance is prevented, but SMEs and suppliers agree to terms because of a weak negotiating position. The new proposed laws will void such restrictions in contracts entered into after the end of the year, with some exceptions.

"These new laws will give small businesses more access to the finance they need to succeed and will help ensure they have a level playing field from which to set fair contracts with the businesses they supply," concluded the small business minister.

-Michael Miller, managing editor

Job Growth Dwindles Across Businesses of All Sizes

No matter the size of the business, job growth spiraled in August across the U.S., where hiring plummeted by roughly 54,000 jobs compared to the prior month. According to a Sept. 10 report by payroll service provider ADP, only 163,000 jobs were added in August, falling well below the 206,000 monthly average and the 217,000 added in July.

Despite describing last month’s findings as “sluggish,” Ahu Yildirmaz, ADP Research Institute’s vice president and co-head, said in a statement that the business community remains strong. Hiring declined throughout businesses of all sizes; however, the ADP report states job growth in small- to medium-sized businesses (SMBs) was worse off, with less than half of its July numbers—after adding 59,000 jobs in July, SMBs added a bleak 21,000 jobs in August.

Moody’s Chief Economist Mark Zandi told CNBC the trade war is impacting larger companies because “they’re starting to become more cautious in their hiring.”

“The job market is hot. Employers are aggressively competing to hold onto their existing workers and to find new ones,” Zandi said in the article. “Small businesses are struggling the most in this competition, as they increasingly can’t fill open positions.”

Jobs in the service sector exceeded those in manufacturing, the former growing to 139,000 jobs in August, CNBC reported. Professional and business services hit a stride with 35,000 jobs, followed by education and health services, leisure and hospitality, and then trade, transportation and utilities. Meanwhile, manufacturing came in at 19,000 new jobs, with 5,000 in the construction sector.

—Andrew Michaels, editorial associate

E-Invoicing Ushers Businesses Toward More Tech Implementation

Knowing when and where to start implementing new technology is tricky for any business. Costs and complications alone often steer businesses away from the latest advancements, but some experts believe electronic invoicing adoption is one of the best stepping stones for a gradual transition into 21st century technology.

According to professional services firm EY and their Worldwide Electronic Invoicing Survey 2018, electronic invoicing, also known as e-invoicing, digitizes invoicing documentation between a supplier and a buyer. Unlike paper invoicing, which costs more than $8 per page, e-invoices widdle the price down to $0.35. The survey broke down the quantitative and qualitative advantages to e-invoicing, the former including improved productivity and cash flow.

“Together with electronic storage, e-invoicing can help to serve the corporate responsibility agenda, by eliminating the need for paper and reducing the carbon footprint,” the survey states. “These aspects can have a positive impact on the company’s image and relationships with its customers.”

In France, for example, for every 6,000 paper invoices processed, those using the technology will complete roughly 90,000 e-invoices. While paper invoices can take up to two weeks to complete, e-invoices are finished within three days, with a rate of 80% dematerialization.

From a qualitative perspective, e-invoicing limits risks of error and gives employees the opportunity to spend time on more demanding tasks. The costs and time to implement might be risky for businesses, but there are far more advantages in the long run.

—Andrew Michaels, editorial associate

End of Summer Brings CMI Out of Decline

NACM’s Credit Managers’ Index (CMI) turned around as the summer comes to a close, showing positive readings for the first time in two months. These higher readings show signs of stability for the near future, though the stability may not last with the threat of inflation and on-going trade wars.

The combined CMI score for August went up by 0.3 points, with the most increase seen in the favorable sectors. The unfavorables, however, began to approach a score less than 50—falling dangerously close to contraction territory.

Much like last month’s reading, this month saw the most positive readings in the manufacturing sector. Credit managers reported an increase in the amount of credit extended and also sales, along with more credit applications and dollar collections.

The service sector only gained a tenth of a point this month, with dollar collections and new credit applications the only factors that saw an increase from July. Sales saw the least improvement and extending credit did not see much improvement either.

For the full report, visit nacm.org. Be sure to participate in the September CMI when the survey opens on Monday, Sept. 10. The survey will close on Friday, Sept. 14, so stay up to date by visiting the NACM website for more information.

—Christie Citranglo, editorial associate

Be Extra Cautious When Lending to Micro-SMBs

When credit managers are extending lines of credit, the size of their customers’ business is a factor to weigh in the decision-making process. Just because a business is small doesn’t mean it will never get credit, but both parties have to remain more alert. On Aug. 27, global fintech company Tide explained how micro-SMBs (small- to medium-sized business), those typically having less than 10 employees, exhibit a few specific risks in connection to their size.

As small businesses are getting off the ground, Tide CEO Oliver Prill told PYMNTS, there’s always a chance they won’t make it. There is great probability that costs will run high in the business’ early stages, leaving potential creditors uncertain about the investment. Although Tide is not a direct lender, the company is a data provider that helps manage credit risk for such businesses.

Unfortunately, Prill continued, smaller businesses are also more susceptible to financial crimes, such as money laundering, which again deters credit managers. According to an article by Influencive, micro-SMBs are prime targets because “many startups lack the resources to recover once their business operations have been interrupted and/or their brand’s reputation has been compromised.”

“For this reason, it is of paramount importance for small businesses to consult with cybersecurity experts and utilize IT services that ensure the security of their networks,” Influencive states. “Also, by deploying an IT infrastructure, small business [should] not only streamline their business operations, but also become competent enough to fight off the competition and survive hostile markets.”

—Andrew Michaels, editorial associate

China and US Enter Second Day of Trade Talks

China and the U.S. have entered the second day of trade talks with hopes to smooth over an uncertainty left behind the potential tariffs on imported goods.

As of Aug. 23, both economies have proposed tariffs on imported goods worth about $16 billion. This will make the total value of Chinese goods affected by the Trump administration $100 billion, from steel to soybeans. It is unlikely both powers will make any “meaningful progress” during trade discussions, according to a recent article in Bloomberg.

Many analysts predict the Trump administration will not lighten up in these trade talks, given how the administration has not softened any hard lines toward China in the recent past. According to Bloomberg, the president also widened the gap in the trade wars when he continued to spread rhetoric about China using “currency manipulation,” which has historically been a point of contention between the U.S. and China. The trade team is also putting more pressure on Beijing, as stated in the same Bloomberg piece.

U.S. officials will be meeting with delegations from the E.U. and Japan in Washington, D.C., Aug. 24 to further discuss Chinese trade.

—Christie Citranglo, editorial associate

Simulation Tech Enhances Decision-Making Process for Infrastructure Projects

In some way, shape or form, artificial intelligence (AI) is making a name for itself in the business community. The construction industry is no exception as recently seen in the United Kingdom, where a $4.5 million investment will fund a software company’s latest technological endeavor to create real-world simulations of infrastructure projects.

Startup software company SenSat secured the funding from three investors earlier this month, TechCrunch reported. SenSat’s equipment uses drone imagery and spatial data to simulate a location, said CEO James Dean, who also told TechCrunch that the technology gets a better image via drone compared to satellites, which are typically much further away. The images are then infused with sets of data, giving computers the ability to determine the best course of action regarding the project’s design.

This concept is known as “machine learning,” meaning AI can improve itself over time without human intervention.

“On a technical level, it allows us to build simulated realities for medium to small physical areas, which we have known variables for,” Dean said in the article. “This means we can check and quantify our results against the real world, helping us build a foundation that can scale in size and complexity.”

While the traditional approach may cost more time and money, Dean noted that the SenSat tech is able to assess thousands of infrastructure design options in minutes, not only saving millions of dollars but also significantly improving the decision-making process.

According to a Jones Lang LaSalle, Inc. report, more and more venture capitalists are investing in global construction technology, with startups receiving more than $1 billion in the first half of 2018. Investment in the U.S. alone is about 30% higher than all of 2017.

—Andrew Michaels, editorial associate

‘Good Hires’ Are Hard to Find in Canadian IT Departments

A company is only as good as its employees, and if they don’t have the proper skills to do their job, business becomes much more complicated. According to new research, a vast majority of Canadian corporate hiring managers in the technology sector said they are having trouble making “the right hire,” specifically finding employees who have the skillset required for the position.

During an online survey by job search service Robert Half Technology, 270 senior managers in Canada shared their thoughts on hiring for their respective IT departments, 93% admitting to making a bad hire. The top three reasons for bad hires, ranked most to least common, included unsuitable corporate culture fit, inadequate skills and interpersonal issues. Hiring managers said the hardest part of the job interview was evaluating candidates’ technical skills.

“Not only do they cost organizations time and money, inadequate hires also impact overall productivity and morale, especially if the rest of the team is picking up the slack,” Robert Half Technology District Director Deborah Bottineau said in the study. “Strong candidates are easier to identify when you have a clear understanding of your organization’s values and needs.”

Hiring managers recommended recruiters be crystal clear about the open position by providing potential hires with as much information about the job as possible. In addition to conducting a technical assessment to better understand the individual’s capabilities, they also suggested getting other departments involved in the hiring process and even taking the employee on a trial run before making the hire official.

NACM Economist Chris Kuehl, Ph.D., said many industries are in a tough spot in regards to hiring because a lot of available workers aren’t equipped with the necessary job skills.

“The bulk of hiring now has been some form of poaching, where companies are recruiting from other companies,” Kuehl said. “There are also more people electing to just quit their current job in search for something new. The overall sense of the situation is stability.”

Andrew Michaels, editorial associate

Late Payments Bring Summertime Blues to UK

Just as accountants experience a busy time of year during tax season, small- to medium-sized enterprise (SME) credit managers in the United Kingdom are finding their summers cut short to spend more time hunting down late payments. In fact, 60% of U.K. SMBs are exchanging summer holidays for more workdays dedicated to the task, according to Online Payments Company GoCardless.

On Aug. 14, Global Banking & Finance Review published an article about a recent GoCardless survey, which found that late payments increase substantially during the summer months for two-thirds of SME owners. While 20% of respondents spend three working days dedicated to late payments, 10% said they spend nine days.

“SMEs are the lifeblood of the U.K. economy and it’s not right for them to be denying themselves valuable time to recharge their batteries just to chase late payments,” Josh Sasto, head of partnerships at GoCardless, said in the article. “On-time payment is a right, not a privilege.”

Furthermore, 57% of respondents who do take vacation said they will spend some of that time off addressing their customers’ late payments.

FCIB’s International Credit and Collections survey of the United Kingdom told a different story. According to July 2017 results, more than half of respondents said there was no change in payment delays, with nearly a quarter of respondents reporting no payment delays. Only 16% said payment delays were increasing, but that number dropped to 9% in the April 2018 survey.

“They will only typically pay at the end of the month or on the 15th of the month, and they will not typically pay invoices early to account for their internal processes,” a 2018 respondent said. “As [with] anywhere, you always end up with some customers that have cashflow issues."

Andrew Michaels, editorial associate

Small Business Optimism Reaches New High During July

Small businesses can breathe a sigh of relief moving forward as this past month saw a rise in expansion and higher nominal sales, according to the National Federation of Independent Business’ (NFIB) July Small Business Optimism Index. The index reached a near-record high of 107.9, just one-tenth of a point shy of the highest record ever recorded, which was in July 1983.

This month’s survey also set a record for owners reporting job creation plans and for owners reporting job openings. About 23% of owners anticipate having job openings in the near future, which is three points higher than last month’s survey. Conversely, 37% of owners also reported having job openings they could not fill, seeing a one-point increase from last month.

The survey also predicts expansion will continue, remaining a priority for small businesses. Expansion seems to be more possible with 8% of survey respondents reporting higher nominal sales in the past three months compared to the three months previous. Similarly, 35% of business owners are expecting better business conditions in the upcoming months, moving up two points in total since June.

“Small business owners are leading this economy and expressing optimism rivaling the highest levels in history,” said NFIB President and CEO Juanita Duggan in a press release. “Expansion continues to be a priority for small businesses who show no signs of slowing as they anticipate more sales and better business conditions.”

—Christie Citranglo, editorial associate

Nonresidential Spending Predicted to Grow in 2019

Nonresidential construction spending is expected to take a step back in 2019 compared to 2018; however, overall nonresidential building is still predicted to grow. At the start of the year, economists from different firms polled by The American Institute of Architects (AIA), said views have changed for the better, according to the recently released consensus forecast from AIA.

"At the halfway point of the year, this panel is even more optimistic," said AIA Chief Economist Kermit Baker, Hon. AIA, Ph.D. in the release. Overall nonresidential building was predicted to have a 4.7% growth in 2018 and a 4% growth in 2019. At the beginning of the year, it was projected that nonresidential spending would increase 4% this year and slightly under that next year.

Commercial/industrial is expected to have a large drop-off next year, coming in at 3.4% growth compared to nearly 7% this year. However, industrial growth is forecasted to increase 5% year-over-year. Meanwhile, the institutional sector is expected to remain the same at 4.5% growth. Public safety is forecasted to see a large drop in growth as well from 10.9% to 5.9%.

"If these projections materialize, by the end of next year the industry will have seen nine years of consecutive growth, and total spending on nonresidential buildings will be 5% greater—ignoring inflationary adjustments—than the last market peak of 2008," added Baker.

-Michael Miller, managing editor

​For the latest construction credit news, visit NACM's Secured Transaction Services at nacmsts.com.

Samsung Invests Big Money in AI Amid Smartphone Security Issues

Artificial intelligence (AI) is the wave of the future and Samsung knows it. The South Korean conglomerate announced Aug. 8 that it plans to invest more than $22 billion (25 trillion Korean won) over a three-year period to expand AI and additional technological research.
 
In an effort to fuel growth through 2020, Samsung states it will also funnel the majority of funds into Samsung Electronics with a focus on auto technology and fifth-generation (5G) cellular technology, The Wall Street Journal (WSJ) reported. The latest announcement brings the company’s total technology investment to about $161 billion, or 180 trillion won. Samsung previously stated funds will go toward capital expenditures and research and development regarding its semiconductors and displays businesses.

“The company plans to build an internal team of at least 1,000 AI-dedicated engineers and researchers by 2020, with new hires and worker reassignments” at the newly-opened centers in Cambridge, U.K., Toronto and Moscow, WSJ states. “By that year, Samsung wants to put AI features and internet connectivity into all its products.”

In the meantime, Samsung Electronics researchers are busy addressing a security issue with the Galaxy S7 smartphone involving a microchip flaw that enables hackers to spy on users. Researcher Michael Schwarz told CNBC that “potentially hundreds of millions of phones” are affected by vulnerabilities known as Meltdown and Spectre, which can reveal passwords and banking information. Samsung continues to fight against the problem, having recently released its second update in July to prevent breaches. 

—Andrew Michaels, editorial associate