July 2018’s CMI Forecasts Negative Outlooks in Long Term

The Credit Managers’ Index (CMI) for July showcases an overall drop in both the service and manufacturing sectors, setting the CMI back to a point that has not been this low since January of this year.

While the current economic environment has boasted a speedy quarterly growth of 4.1%, an unemployment rate between 3.8% and 4%, and an expansion of exports, NACM Economist Chris Kuehl, Ph. D, said this growth likely won’t continue—and this month’s drop in the CMI reflects this eventual fallout. With the sales category falling dramatically in both sectors, trouble may be imminent in the future.

“The fear now is that some of the factors that had been keeping the economy functioning reasonably well are starting to fade,” Kuehl writes in the CMI report.

On the more positive end of the spectrum, this month’s CMI shows bankruptcies improving in both sectors, along with rejections of credit applications also improving.

For the full report and more details about the CMI from Kuehl, visit nacm.org on Thursday.

—Christie Citranglo, editorial associate

Auto Suppliers Question Motive Behind Tesla’s Refund Request

Suppliers for Tesla Inc. are scratching their heads after the electric car company sent an unusual memo to some of its suppliers last week asking for a partial cash refund to boost profitability. According to Bloomberg, less than 10 suppliers received the memo, which Morningstar Analyst David Whiston described as “troubling” in an interview with the publication.

The requested refund was sent by a global supply manager and would consist of supplier payments made in 2016, Yahoo Finance reported. In addition to cash back, Tesla is also asking for price reductions. After the memo was obtained by The Wall Street Journal (WSJ) on July 22, suppliers and manufacturers in the auto industry began questioning Tesla’s motives.

“Usually, carmakers play hardball with suppliers going forward, not backward,” Whiston told Bloomberg. “The second quarter could look ugly because [Tesla] spent a ton of money ramping up to hit production targets.” The article noted that Tesla, which is $10.5 billion in debt, spent $8 billion since 2014, $1 billion of which was spent in the first quarter of 2018 for the production of its Model 3.

Tesla’s share price plummeted on July 23, WSJ reported, but supplier payments have been slow since 2016 in efforts to “save cash.”

While Tesla is made in the U.S., NACM Economist Chris Kuehl, Ph.D., said the auto sector as a whole has been “on the edge” over the past few months, particularly because of the administration’s tariffs. The 25% tariff on steel imports, which has been underway for nearly two months, is putting a strain on carmakers, who are also facing an average price increase of 40% for steel.

“The consumer is beginning to worry about inflation now [and] it is not clear they will tolerate much of a price hike,” Kuehl said. “Conversations about tariffs and bans on imported cars have not been helpful either, as the auto sector is not so easily divided into these categories anymore. The tariffs would hit GM and Ford as hard as Toyota and others.” 

Andrew Michaels, editorial associate

Think Before You Click: Avoiding Email Scams

Think twice before you open that unrecognizable email because it may cost you. Earlier this month, the U.S. Federal Bureau of Investigation (FBI) updated its data on business email compromise (BEC) scams, which have increased steadily around the globe in less than two years.

In a public service announcement on July 12, the FBI stated the scams are “targeting small, medium and large business and personal transactions” that involve wire transfer payments or requests for employees’ Personally Identifiable Information (PII) or Wage and Tax Statement (W-2) forms. The number of reported BEC scam-related losses increased by 136% between December 2016 and May 2018 in the U.S. and 150 other countries. Total funds lost have exceeded $12 billion—nearly $3 billion of which was lost by more than 41,000 people in the U.S. in less than five years.

The scams frequently target the real estate sector, affecting transactions by title companies, law firms, real estate agents, buyers and sellers. The number of victims in the sector reportedly increased more than 1100% between 2015 and 2017, while losses rose nearly 2200%.

“Victims most often report a spoofed email being sent or received on behalf of one of these real estate transaction participants with instructions directing the recipient to change the payment type and/or payment location to a fraudulent account,” the release noted. “The funds are usually directed to a fraudulent domestic account, which quickly disperses through cash or check withdrawals.”

As the saying goes, “the best defense is a good offense.” In this case, the FBI asks businesses to verify the requested changes in payment type and/or location. Victims can also attempt to stop fraudulent transfers after they have occurred by requesting a recall on the funds from their financial institution as well as reporting the incident to their local FBI office.

-Andrew Michaels, editorial associate

Santander Bank Eases Customers Into Digitized Banking and Loan Payments

Santander Bank announced July 18 it will begin using nCino technology to speed up business lending operations. This new integration will be available to customers as the year progresses, adding more features gradually; using nCino is estimated to cut loan-decision time by 40%.

The operating system nCino uses clouds to create omnichannel access for Santander services. By using clouds and filtering information, determining creditworthiness becomes much quicker and leads to a loan decision being made in a shorter period of time.

More features will be added for Santander customers as the bank becomes accustomed to nCino. Santander mentioned including online loan applications and customer relationship features.

Part of nCino’s goals stem from simplifying technological features and easing banks and customers into the world of digitized banking. Since the partnership between nCino and Santander is just beginning, more digital banking innovations will likely emerge in the future.

—Christie Citranglo, editorial associate

Safety Net Protects Canadian Automakers From Possible Retaliatory US Tariffs

Canadian suppliers worried about retaliatory tariffs from the U.S. can breathe a sigh of relief, at least those working in the automotive industry. Tariffs on U.S. steel imports have raised costs across the sector; however, according to Reuters, Canadian government customs provisions are in place that could “reduce or refund import duties” to companies in the country as long as suppliers use the material in export products.

Following the U.S. administration’s decision in June to impose steel and aluminum tariffs on our neighbors to the north, Canada retaliated with its own tariffs on $12.8 billion worth of U.S. goods. On July 16, Reuters reported Canadian automotive supply contracts for raw materials and parts fall under these programs, which stand to help those operating in the country, including General Motors, Ford, Fiat Chrysler, Toyota and Honda.

Trade Lawyer Jesse Goldman, of Borden Ladner Gervais, said in the article that retaliation would “very significantly and very quickly” hurt Canada’s automotive sector.

“Some 85% of vehicles built in Canada in 2016 were exported,” the article added, “meaning duty relief programs could refund roughly 85% of retaliatory tariffs paid by automakers.” The only concern standing in the way of such benefits is the possibility of additional U.S. tariffs on Canadian-made vehicles because the rebate programs do not cover finished products.

To apply, a company must submit an individual application that details how it uses its imports, John Boscariol, of McCarthy Tetrault’s international trade and investment law group, told Reuters.

-Andrew Michaels, editorial associate

US Import Prices Down, Not Sustainable for Future

The price of U.S. imports saw the largest drop in two years as of June—but this drop is not likely to last after tariffs on foreign goods are imposed.

Import prices jumped by 0.9% in May, while June saw a sharp decrease of 0.4%, a dip that comes close only to the drop in February 2016, according to the Labor Department. Imported food saw a significant fall, coming in at a 2.6% decrease. The last time food fell this low was in February 2012. Petroleum also shook the market, falling 0.8% after a sharp 7.4% increase in May. Crude oil prices in general dropped in June as well.

However, these drops are not sustainable, according to a recent article in Reuters. The current presidential administration has imposed tariffs on imported lumber, steel and aluminum, which will inevitably raise the prices for July. The U.S. government has also called for 25% duties on $34 billion of Chinese imports. Previously, the president threatened 10% tariffs on $200 billion of Chinese goods.

“Odds are that the tariffs will begin to boost import prices,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania, in an interview with Reuters. “The inflationary impact of the steel and aluminum tariffs has been modest, partly because a number of countries initially were exempt, but that has changed.”

—Christie Citranglo, editorial associate

‘Imminent, Serious’ Inflation on the Horizon

Inflation is becoming increasingly problematic for U.S. producers. Unanticipated gains in June’s Producer Price Index (PPI), released July 11, have economists predicting rising costs for manufacturing and construction material in connection to the U.S. administration’s tariffs on various imports.

According to Reuters, the PPI reached an annual increase of 3.4% in June after last month’s 0.3% gain, becoming the most substantial annual increase since the 3.1% seen in November 2011. Economists predicted the PPI would increase 0.2%. As previously reported by news outlets, the Federal Reserve is still expected to increase interests rates twice before the end of 2018.

U.S. tariffs have caught the attention of China, the European Union, Canada and Mexico, all of which have retaliated with their own tariffs in recent months. President Donald Trump’s 25% tariffs on $34 billion of Chinese imports, and threats of more, is creating tight times for U.S. manufacturing and construction due to significant price increases in steel, aluminum and softwood lumber as well as iron and steel mill products.

“Since the PPI covers the price of domestically produced goods, these gains represent U.S. producers raising prices behind the tariff wall or the impact of higher input costs,” Chief Economist John Ryding, of New York-based RDQ Economics, said in the Reuters article. “We expect these price pressures will flow through into higher core inflation at the consumer level as the year unfolds.”

NACM Economist Chris Kuehl, Ph.D., suggested the low inflation seen in the past decade might soon come to an end due in part to the rising prices of commodities and key services. The U.S. government’s tariffs are making this threat “more imminent and serious,” he noted.

“The tariffs on steel and aluminum triggered the metal producers to boost prices by around 40%,” Kuehl said. “The threats of a trade war have further added to the problem as this will make imports costlier. The full impact of this move has not yet been felt, but those days are coming and soon.”

-Andrew Michaels, editorial associate

Survey Shows Tax Reform Likely Will Not Increase Spending

Even with a tax reform passed by the Trump administration, corporate spending will likely not see an increase, according to a report from the Association for Financial Professionals (AFP). Forty percent of the 640 corporate treasury and finance executives surveyed do not expect their spending to change in the near future.


Even though 60% said they will increase spending, this spending comes in the form of paying down debt and pulling foreign cash back into the U.S., not buying more goods. AFP President and Chief Executive Officer Jim Kaitz said in a statement these companies are acting cautiously with their money, waiting for the right moment to spend the saved money.


Conversely, State Street Global Advisors’ Senior Managing Director and Global Head of Cash Business Yeng Felipe Butler said in a separate statement businesses are holding off on spending because of rising fears surrounding the U.S. economy’s growth.


A majority of the survey respondents—59%— do not anticipate seeing changes in short-term investments for their firms; only 10% anticipated a change. The findings in this survey match that of another survey by AFP released in May, titled Corporate Cash Indicators Report.


—Christie Citranglo, editorial associate