Thursday, February 7, 2013 by
The latest edition of the National Association of Credit Management's (NACM's) Credit Managers' Index (CMI) marks its 10th-year anniversary of providing financial professionals, economists and policymakers with a startlingly accurate forecasting tool.
Since its inception in January 2003, the CMI's methodology has undergone a number of revisions, but never stopped being an immensely powerful economic predictor. In 2007 it was even able to tip analysts off to the start of the "Great Recession" in December 2007, showing a noteworthy decline in October of the same year.
Throughout the recession, the CMI reflected a remarkable sensitivity to the intricacies of the economic downturn, and resisted the month-to-month swings that characterized other economic indicators. Eventually it anticipated the recession's end as well, showing signs of market stabilization and nascent growth as early as February 2009, while the actual recession came to an end four months later in June.
The CMI's strength as a forecasting tool comes from the insight of credit and risk management professionals, whose responsibility it is to know what's coming next. "I think it's the nature of credit management," said NACM Economist Chris Kuehl, PhD. "Credit managers are as concerned about the condition of their clients 15, 30, 60 and 90 days from now as they are today. The tendency is to think ahead."
Moreover, the structure of the CMI survey eliminates the opportunity to speculate. Other economic indices ask respondents what their company intends to do in the coming months, but intentions don't always align with reality. "As soon as you start getting into that kind of conjecture, you kind of weaken the data," said Kuehl. "When responding to the CMI question, 'Do you have more credit applications?' there isn't a lot of room for interpretation. You're getting responses that have to do with credit applications and the status of accounts, and most of that stuff is oriented to the future."
Over the last decade these factors have combined to create an unrivaled forecasting tool that's relied upon by those in the highest levels of finance and economic policy. As participation continues to grow and people continue to recognize its value, the CMI looks poised for another winning decade.
For more on the CMI, or to participate, click here.
- NACM staff
Friday, February 1, 2013 by
The January Credit Managers' Index (CMI), published by the National Association of Credit Management (NACM), dipped slightly as it painted the picture of an economy in transition.
To find the kind of variety found in the most recent edition of the CMI, one would have to travel all the way back to 2008, in the months that preceded the slide into the recession. For every sign that things were deteriorating at that time, there was a part of the index that looked solid and unaffected by the impending crisis. Now, however, that transition is showing again, but seems to point in the opposite direction: for every factor suggesting that the economy is still in the doldrums, there are one or two other factors that point to better days ahead.
For example, while sales improved in this month's report, new credit applications declined, signaling potential trouble ahead. "The number for new credit applications is important in that it tends to anticipate the gains some of the other factors will have later,” said NACM Economist Chris Kuehl, PhD. “If there is not much in the way of new credit activity, it is a signal that fewer companies are in expansion mode."
The complete CMI report for January 2013 contains more commentary, complete with tables and graphs and individual data for the manufacturing and services sectors. CMI archives may also be viewed on NACM’s website.
Friday, December 28, 2012 by
Though a number of favorable factors that help comprise the National Association of Credit Management’s Credit Mangers’ Index (CMI), problems with sales ultimately outweighed the positive toward the end of 2012.
The CMI, available Friday afternoon (see link at bottow of story), will show a slight decline for the month largely on disappointing sales figures. NACM economists Chris Kuehl believes this reinforces the notion that business is stalled out in anticipation of what might happen with spending and taxation next year. There was some cautious optimism just one month ago in the CMI, but that optimism has seemingly evaporated, as it seems all but certain that there will be no settlement of lasting value on the “fiscal cliff” issue paralyzing Congress and the Obama Administration.
Other favorable factors statistics were not expected to register the same level of distress, even though a few small declines were expected. Additionally, the unfavorable factor index for December will show only a slight decline. The overall sense is that this month’s decline is due to the tensions existing among (and caused by) federal lawmakers. The inability of Congress and the president to make a deal has already cost significant economic growth, and it is now anticipated that real decline in GDP growth will be the next outcome.
“The reaction captured in this month’s CMI shows a stark lack of confidence as opposed to anything substantial,” said Kuehl. “The overall news for the economy has been pretty good, and so it is with much of the CMI. The factors most connected to mood and confidence are the ones slipping. The whole business community seems to be in state of suspense.”
The complete CMI report for December 2012 contains more commentary, complete with tables and graphs. CMI archives may also be viewed on NACM’s website.
Thursday, November 1, 2012 by
The October Credit Managers’ Index, available now at www.nacm.org, reflected the mood of the overall economy, one with some aspects point in a positive direction and others decidely the opposite.
The sense is that a few of the big issues that have been affecting other economic measures are having an impact on the CMI. While it is hard to point explicitly at the “fiscal cliff” as a cause for overall decline, it is quite apparent that the uncertainty affecting business decision-making is having an impact, as some of the future indicators are weaker than expected at this point.
The most distressing category in this month’s survey, and the one that seems to point to the fiscal cliff issue, would be sales. CMI statistics on sales show a decline to the lowest level since the middle of 2011. While disappointing and troublesome, sales remains in expansion terriorty, if nothing else.
"The silver lining in this case would be that a solution to the crisis would likely result in a jump in capital expenditures and investment in general, said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM) regarding the fiscal cliff issue. "The downside is that the powers that be could still allow the unthinkable to occur."
Meanwhile, favorable and unvavorable factors stayed on the encouraging side of the growth/contraction line. However, one particular category of importance showed a significant decrease. Dollar amount beyond terms sported the biggest decline among unfavorable factors. In the past, this has indicated that companies are starting to struggle to meet their obligations, and in the months to come some of the other negatives start to accelerate.
The complete CMI report for October 2012 contains the full commentary, complete with tables and graphs. CMI archives may also be viewed on NACM’s website.
Thursday, October 11, 2012 by
Small business lending is expected to increase according to the most recent survey of bank risk professionals published by the Fair Isaac Corporation (FICO).
Bankers expressed widespread optimism about the small business lending sector, voting by more than a two-to-one margin that the approval rate for small business loans and the total amount of credit extended to small businesses would increase rather than decrease. More than half of all respondents predicted that the overall supply of small business credit would meet demand, although this could simply be a symptom of weak demand rather than a boost in available credit.
Notably, survey respondents were less positive about small businesses' requests for credit. In the first-quarter survey, a large majority of 61.9% of respondents predicted an increase in the amount of credit requested by small business. This figure increased to 69.1% in the second-quarter survey, but fell hard to 56.5% in this quarter's survey. This is still a positive trend, with a majority of participants expecting increased requests for credit, increased approval rates and increased credit in general, but it's not as positive as many had hoped.
Still, the third-quarter survey, conducted for FICO by the Professional Risk Managers' International Association (PRMIA), didn't leave the banking industry wanting for reasons to be anxious. Concerns in the student loan market were rampant in the survey, with a 61% majority of respondents expecting delinquencies on student loans to increase over the next six months. This marks the fourth consecutive quarter that respondents have predicted a worsening of student loan delinquencies.
Commercial credit risk managers might not have to worry about the threat of student loan defaults, unless they're their own, but the adverse effects on the economy at large from these delinquencies could be potent.
- Jacob Barron, CICP, NACM staff writer
Tuesday, August 14, 2012 by
A poll of small business owners finds that the perception on the street is that it is unlikely they’ll be approved for the credit they ask for – whether via a partial amount granted or full-on denial – so many have simply stopped applying. But there does seem to be some optimism out there for the next year, whether based on tangible signs or blind hope. Meanwhile, interviews from the poll seem to tangentially promote an idea near and dear to NACM: workers need to advance and expand the roles of their positions to boost their stability.
The Federal Reserve Bank of New York unveiled its Small Business Borrowers Poll, which included results that indicated microloans are at a peak demand right now yet remain highly difficult to garner, especially among start-ups. This often is the case even for new businesses run by a proprietor with a sterling credit history. Poll results based on N.Y. Fed polling also found that nearly 50% of those small business that did not apply for credit/bank loans, opted not to do so out of belief and/or fear of rejection. Perhaps that is with good reason as only 13% of those who did apply in recent months and participated in the poll received the full amount requested. Just more than one-third received a portion of the requested amount, according to the N.Y. Fed.
Additionally, interviews included in the Fed’s report shined a light on the widely held believe that small business owners do not see smooth sailing for most of the remainder of 2012, even if they are upbeat about things being better at this time next year. But, in the meantime, business owners are preparing as if credit isn’t going to come their way, and want employees, from sales to credit, to realize the importance of stepping out of the traditional box of their job descriptions to provide more value and, thus, boost the prospects for the business and their job security alike.
“Whatever you think cash-flow-wise you will need for your worst, worst scenario, like the one you think is never going to happen, double it,” said Allison O’Neill, a New York clothing store proprietor interviewed by the Fed. “Everyone who works here wears many hats…Everyone who's here is a sales associate and a social media manager, and a marketing manager, and an inventory specialist…”
-Brian Shappell, CBA, NACM staff writer
(Note: To view the full report, visit http://www.newyorkfed.org/smallbusiness/2012/).
Tuesday, June 12, 2012 by
NACM National Chairman Marshall Kahn, CCE, kicked off the second full day of the 2012 Credit Congress with news that NACM enjoyed its second consecutive year of profitability after a couple of lean years during the deep U.S. and global recession.
Kahn noted that membership remains well above 15,000 at 2011's end, yet reiterated the importance for members with potential for national and board of directors to step up to become a board volunteer in the near future. And though speaking about the importance of Washington advocacy and calling your lawmakers on behalf of issues important to credit professionals, his sentiment about taking action drew parallels on other key issues for the association and profession, such as membership recruitment.
“Please don't assume that others will carry the burden of acting,” Kahn said. “Each of you plays such an important part through participation.”
Among those showing the way in that regard were affiliates MACM Midwest, NACM Upstate New York in Buffalo and NACM Wisconsin; and each of which received a 2012 membership award.
Kahn also invoked a long-standing theme at NACM: Strength in numbers. It's a theme speaker/author Garrison Wynn also drew upon during his presentation. The former comedian energetically delivered a speech about the need for credit managers to prove competence and trustworthiness in credit departments, all while peppering in a healthy dose of humor for the Credit Congress delegates. And, as he put it, trust is largely built on two things; compassion and competence.
And while teamwork and strength in numbers matters, Wynn also stressed to delegates the need to, as an individual, act naturally. Every winning team needs different personalities, even employees that could be labeled as negative (they might be the one that sees a problem in advance that some more optimistic employees might miss).
“The reality of things is we have to be honest about who we are...voice what you know,” Wynn said.
-Brian Shappell, CBA, NACM staff writer
(Note: Check back for more on-site coverage from 2012 Credit Congress throughout the week).
Thursday, May 31, 2012 by
The latest Credit Managers’ Index (CMI), now available at NACM’s website (www.nacm.org), finds an manufacturing and service sector swoons in play yet again in 2012 despite what was seen as strong potential at the onset of the year.
The main sense provided by the new CMI statistics is that consumers are feeling tentative. This is compounded by what NACM Economist Chris Kuehl intimates are significant secondary scenarios contributing to the “spring swoon:” those being continued concern over the European financial crisis, high domestic unemployment and inflationary pressure. Granted, conditions have not deteriorated to a point that calls for panic on the part of businesses and credit professionals.
“The gains made in the last year have largely been erased, and now the question is whether there will be a swift and significant comeback,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). “The [CMI’s] drop from April to May is not quite as steep as the one from March to April, but the decline is worrisome nonetheless.”
The CMI report for May 2012 is available online now and contains full commentary, complete with tables and graphs. CMI archives may also be viewed online.
-Brian Shappell, CBA, NACM staff writer
Thursday, March 8, 2012 by
Two global service providers recently joined forces to create a new way to facilitate trade finance.
SWIFT, a financial messaging provider for institutions in 210 countries, and the banking commission of the International Chamber of Commerce (ICC) collaborated on the Bank Payment Obligation (BPO), a new payment tool that can be used between banks and looks poised to enhance, or possibly replace, commercial and confirmed letters of credit.
The BPO essentially moves all of the manual tasks associated with using a commercial letter of credit and automates them, creating fewer chances for errors throughout the process. It represents an irrevocable undertaking given by one bank to another bank that payment will be made on a specified date after a specific event has taken place, according to SWIFT-ICC. “This ‘specified event’ is evidenced by a ‘match’ report that has been generated by SWIFT’s Trade Services Utility (TSU), or any equivalent transaction matching application,” they added.
Interoperability between participating banks is made possible by the BPO’s reliance on a standard set of messages, each of which reflects events that have taken place in the physical supply chain, and “create trigger points for the provision of financial supply chain services.” For example, the bank’s systems could generate a message that proposes offering pre-shipment financing based on a trigger point that indicates the confirmed receipt of a purchase order, or a proposition of post-shipment financing based on the receipt of an approved invoice. In either case, the BPO would be used as collateral for the financing.
The reliance of all participating banks on the single messaging standard, called ISO 20022, takes the guesswork out of the documentary credit process. “Open account often fails to provide banks with access to underlying transaction data—impeding their ability to follow relevant events in the physical supply chain,” said SWIFT-ICC. “The BPO and related ISO 20022 messaging standards provide access to relevant data, records and reporting—giving banks the ability to provide risk mitigation, finance and payment services while introducing additional automation and efficiency into the supply chain management process.”
In other words, by matching data according to the messaging standard, banks get a front row seat for the entire supply chain process and can react immediately to the occurrence of certain events. Furthermore, matching the data automatically ultimately removes the subjectivity associated with the manual checking of documents. Instead of having to look at the actual documents and make a judgment call on whether or not they’re correct or in compliance, banks will know instantly if there’s an issue or if the documents are good to go. “There is no subjectivity attached to data matching,” said SWIFT-ICC. “It either matches, or it doesn’t.”
So far SWIFT and ICC have only signed an agreement confirming the framework for the future publication and maintenance of a set of contractual rules that will establish uniformity of practice in the market adoption of the BPO. Stay tuned to NACM’s blog for further developments.
Jacob Barron, CICP, NACM staff writer
Tuesday, February 28, 2012 by
Expect to see continued gains from the February Credit Managers’ Index (CMI) when it’s released Wednesday morning. In addition to solid growth in the overall index, certain key categories received a boost and provided another dose of confidence to the still leery American economy.
“The mood of the country could best be described as cautious and perhaps a little encouraged as far as economic growth prospects are concerned,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). The question mark stems from the last month’s sudden spike in oil prices and its potential impact on the price of gasoline. Kuehl noted that in the past this kind of leap was enough to send the economy hurtling back into recession, but thus far the consumer seems to be taking it in stride.
How long the even temperament of consumers will last is anyone’s guess, but if the threat of high prices turns out to be a temporary one, expect both consumers and businesses to breathe heavy sighs of relief and return to focusing on the good news that has so far dominated the start of 2012. “There has been good news on the job front, better demand numbers, better growth numbers and better numbers in the CMI,” Kuehl added.
Sales numbers also grew in February, which signaled future improvements in the index’s unfavorable factors in the months to come. “An expansion in sales allows companies to catch up on their debt and improve their overall credit standing,” said Kuehl. “This bump in overall business activity is a precursor to additional expansion.”
The full CMI report for February 2012 with commentary, tables and graphs will be available Wednesday. CMI archives may also be viewed here.
Jacob Barron, CICP, NACM staff writer
Monday, January 30, 2012 by
The January Credit Manager’s Index (CMI), to be unveiled Tuesday afternoon, is expected to illustrate a small positive increase from the holiday-assisted December index. It’s much like the positive out of the gates found by the CMI in January 2011 – but, this time, some key statistics within seem to predict a better follow-up to the strong start than one year ago.
Chris Kuehl, PhD, National Association of Credit Management (NACM) economist, noted the parallels between this and last year, but also spelled out the potential “staying power” behind this year’s January finish that was absent by Spring 2011. New sales in January will see a bump in the not-yet-public CMI results. In fact, January’s sales numbers will show themselves to be the best in many months. That said, nothing is a guarantee going forward in this up-and-down economic recovery
“The next few months will bear watching to see if this sales trend is repeated and sustained longer than it was in 2011,” said Kuehl. One area Kuehl seems to believe will be a harbinger of a better late winter/early spring in 2012 is a bump in new credit applications:
“The jump from December [to January] was nothing short of spectacular,” Kuehl foreshadowed. “The trend toward more credit applications suggests a lot of new activity; it is equally encouraging that there was a gain in the number of credit applications accepted.”
(Note: The online CMI report for January 2012 contains the full commentary, complete with tables and graphs and will be available Tuesday. CMI archives may also be viewed online).
Brian Shappell, NACM staff writer
Wednesday, November 30, 2011 by
The Credit Managers' Index, to be unveiled Wednesday afternoon, is set to show the overall index was largely unchanged over the last month. But, given that September had been seen as a major success, that’s not necessarily such a bad thing. What is a bad thing, even if it’s likely to be short-lived, is the noticeable drop in sales levels.
Perhaps the quickest, most accurate way to describe the to-be-unveiled CMI is to use just two words: mixed bag.
“If one is of a more pessimistic bent, there is the continued high rate of unemployment, the struggles in the housing sector and the sense that nobody in the political realm has a clue what to do about any of this,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). “There is the mess in Europe, the gyrations in stocks and consumer polls that suggest that vast numbers of people are in bed with the covers pulled over their heads. If you tend toward optimistic, there is something for you as well, especially recently.”
Perhaps the reason for those optimistic lies in the stability in recent months for the manufacturing sector, which is said to continue in November and reflect strength found in May, before a disconcerting summer dip. Additionally, market-watchers may be licking their chops on the news that Black Friday and Cyber Monday sales figures were up significantly. However, those numbers won’t actually show up in the CMI statistics until next month Without the holiday sale/marketing-inspired shopping numbers, sales will be off quite a bit in November and are said to track at the lowest level of the year.
Most economic indicators were pretty stable, aside from the dwindling number of bankruptcy filings. Kuehl, who prepares the CMI, notes the feeling is most companies that were going to file or fold have already done so. Granted, U.S. businesses haven’t purged all financial issues, “but, going forward, many companies will see opportunities to gain market share from those competitors that have left the scene and that strengthens their ability to gain momentum in the coming year,” the economist said.
(Editor’s Note: The November CMI will be release through various sources this afternoon. Check back at www.nacm.org in the home page’s news scroll to get all of the November CMI statistics and analysis).
Brian Shappell, NACM staff writer
Tuesday, September 6, 2011 by
(EDITOR'S NOTE: Solyndra LLC officially filed for Chapter 11 in U.S. Bankruptcy Court in Delaware early Tuesday. Story originally posted on 9/1/11) As predicted in NACM’s eNews more than a month ago, “green” business has become far from gold, especially where solar is concerned. Just last Monday, NACM covered the SpectraWatt Inc. Chapter 11 bankruptcy filing. One day later, yet another company announced it was with certainty heading down the same path.
Solyndra LLC, a solar energy products firm which gained notoriety during well-publicized visit there by President Barack Obama in 2010, announced plans to file for bankruptcy protection as early as next week. It marks the third solar in a month to official file for or announce Chapter 11 in the last month, with more potential struggling firms in the pipeline. Like SpectraWatt shortly before them, the company’s high-tech solar product offerings had become “noncompetitive” as Asian manufacturers, especially those based in China, continue to deeply undercut the firm and its competitors on pricing and overhead. Even significant financial assistance in the form of federal programs could not help enough. The problems are fueling speculation about widespread, near unrecoverable problems emerging in the solar business niche. More than 1,000 Solyndra employees are expected to be out of work almost immediately as a result of the company’s proverbial white flag.
As previously noted, it’s a prediction Credit Management Association's Mike Joncich make in an interview for stories in NACM's eNews and. the new issue of Business Credit Magazine. He noted the industry's problems go deeper than just an economic downturn/slow recovery and include serious over-saturation:
"There was over-investment in those industries [during the boom], and a number of companies are going to fall out that didn't have the right ideas or right business models to survive,” said Joncich. “Credit managers have to be aware of such phenomena."
Earlier this month, Massachusetts-based Evergreen Solar filed for Chapter 11 bankruptcy protection and, months before that, Maryland-based BP solar operation halted its activity in favor of relocation abroad to save costs.
Brian Shappell, NACM staff writer
Thursday, September 1, 2011 by
The Credit Managers’ Index (CMI) for August hasn’t been this low in more than a year—falling from July’s 53.9 to 52.7—and is now tracking at levels last seen in 2008–2009. “The news this month is not good and comes as no shock to anyone who has been tracking the data coming from all directions,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). If there is any good news, it is that the combined number has not yet fallen below 50, the threshold separating contraction from expansion. But the index of unfavorable factors fell to contractionary levels. The last time the unfavorable index was this low was in the 2009 period when the recession had just started to show signs of easing. The fact that the data was not worse this month than it was is probably worth noting as most of the other indices released in the last few weeks suggested there might have been an even steeper decline.
Kuehl said the best news in this month’s data is found in the favorable index. Here the data barely changed, going from 58.9 to 58.1. This is still much lower than most of the last year, but the precipitous collapse that took place in the companion part of the overall index did not take place here. There was even some improvement in the amount of dollar collections, while declines in the sales category were slight, from 60 to 59.2. “The most interesting aspect of the data is that extension of credit actually improved in the middle of all this gloom and doom. The fact that favorable factors have improved slightly or remained stable provides some hope that conditions will improve in the coming months,” said Kuehl. “There is still demand and business progress, but the crisis in the overall economy has been putting pressure on the finances of many companies.”
Upon examining the unfavorable factors, it is striking that the problem is primarily one of sudden business stress and failure. The biggest declines were in accounts placed for collection and dollar amounts beyond terms. These are signs of real distress among customers, but it is equally significant that filings for bankruptcies did not increase dramatically and there was not an acceleration in the rejection of credit applications. The divergence in these factors is particularly interesting and informative. While speculative, one could look at this data and conclude that companies got in trouble in the last month or so because of a sudden drop in business after anticipating better times. Evidence from earlier in the year showed that companies across the board were anticipating better days in the second half of the year and many were trying to prepare for this with expansion plans. This anticipated economic growth did not come to pass and these companies swiftly got into trouble.
If there is a small silver lining to all this, it is that the level of bankruptcies has not risen at the same pace. That means one of two things. If the economy gets back in gear in the next couple of months, companies struggling now will have some time to gain control of their budgets and be able to avoid sliding further toward collapse and ultimately bankruptcy. If the economy doesn’t catch fire to some extent in the near future, the bankruptcy rate will start to climb and the index will reflect it. The other mildly encouraging piece is that the rate of rejection for credit applications was not markedly different from last month. There is still credit available to customers that are bucking the trend. This is not like the situation at the end of 2008 when the entire credit system came screeching to a halt and even the best of companies were denied access.
The data this month is mixed but with a decidedly downward slope. The CMI remains in expansion territory, but is holding on to that status by a thread. There may be another month of essentially flat growth in store, but after that the economy will begin to tilt in one direction or another. If there is no real improvement in some of the fundamentals, the index will reflect continued deterioration. There is some resilience evident in the index numbers as the favorable categories are holding their own. The sectors that will drag the whole index further under include those that are most dependent on the decisions that companies made when they were expecting some solid economic growth by now. The credit requested made sense at the time, but now there is some serious concern as far as what happens next if the growth rate remains mired in the predicted 1% to 1.5% region.
The online CMI report for August 2011 contains the full commentary, complete with tables and graphs. CMI archives may also be viewed online.
Monday, August 29, 2011 by
The realities of a tough market for sustainability based products and services, which were all the rage during the late boom years last decade, continue to dampen the once rose-colored view on green business. Yet another blow to the so-called green products and services niche segment came last week as New York-based SpectraWatt Inc., a spin-off of Intel Corp. that had been based in Oregon until 2009, filed for Chapter 11 bankruptcy protection.
SpectraWatt officials said the company’s products, primarily high-tech solar cells, had become “noncompetitive” as Asian manufacturers continue to deeply undercut the firm and its competitors on pricing and overhead. Hurting matters for the company earlier this year was its unknowing receipt of defective components that were used in the production of its own products, which caused their value to plummet.
In the filing, SpectraWatt foreshadowed a slew of solar business failures by pushing for an auction to be held quickly, in less than one month, on its prediction that the market will be flooded with such solar product sales very soon. It's a prediction Credit Management Association's Mike Joncich make in an interview for stories in NACM's eNews ann the new issue of Business Credit Magazine. He noted the industry's problems go deeper than just a downturn/slow recovery:
"A lot of companies started up to participate in that sector—there was a substantial investment in green companies that are making the best of products that are energy- or resource-saving," said Joncich. "But there was over-investment in those industries, and a number of companies are going to fall out that didn't have the right ideas or right business models to survive. Credit managers have to be aware of such phenomena."
Also this month, Massachusetts-based Evergreen Solar filed for Chapter 11 bankruptcy protection. Despite receiving millions in federal and state grant dollars and tax incentives, the solar business has struggled mightily in the last two to three years. Earlier this year, it shut down a U.S. plant that employed more than 800 people and, like a Maryland-based BP solar operation before it, relocated abroad to save costs.
Brian Shappell, NACM staff writer
Thursday, July 28, 2011 by
The best that can be said about this month’s Credit Managers’ Index (CMI)
is that things did not get appreciably worse. The latest data suggest a third month of slump, and it appears the economy is languishing in a state that is not quite in crisis but which isn’t showing energy either. For the third month in a row, the overall index was slightly over 54. The fact that it went up by .4 is nothing much to cheer, as the overall index had been over 55 for the six months prior to May’s slip. “If there is anything to be somewhat encouraged by it is that manufacturing improved over the really down month last July, but at the same time there was weakness in the service sector that didn’t appear the previous month,” said Chris Kuehl, PhD, managing director of Armada Corporate Intelligence and economic advisor to the National Association of Credit Management (NACM).
Very little changed as far as favorable factors were concerned. Sales were essentially flat at 60—slightly down from 60.8—but that is a pretty solid sign given the declines noted in other areas. “It appears sales numbers have started to stabilize and are not that far from the highs reached a few months ago when they crested at 66.3,” said Kuehl. The biggest decline was in dollar collections—from 58.1 to 56.2. There have been other signs that collection activity has been slowing, which is consistent with the overall assessments of the economy of late.
“In comparing the CMI readings to other indices, it is apparent the economy has still not committed to either continued growth or a real decline,” said Kuehl. “There have been some positive signs from the latest set of leading economic indicators released from the Conference Board, but there have also been renewed signs of distress as far as consumer confidence is concerned. Not surprisingly there is a sense that much has stalled in the economy as uncertainty has been the rule of the day.”
Unfavorable factors don’t show signs of increased stress and there isn’t a lot to suggest much panic—at least not yet. There was a pretty solid improvement—from 50 to 55.6—in the dollar amount of customer deductions. This was accompanied by modest improvements in the number of rejected credit applications, which improved from 50.9 to 51. There was also improvement in the number of disputes, from 49.3 to 50. “These are not major shifts by any stretch of the imagination, but at least they are not trending downward any further,” said Kuehl.
The overall index barely changed and the manufacturing and service sectors have simply swapped positions again as far as stress is concerned. The CMI numbers for the last three months show a general slowdown in business activity. There has been a slump in sales, a reduction in the number of new credit applications and a slowdown in the collection process. The economy is essentially stalled and the question is whether this is a reaction to something short term or a reflection of some greater underlying trend. The CMI data hint that the situation is temporary and related to uncertain factors gripping the economy. Much of this information is more anecdotal than anything that can be pinned onto hard data. The majority of the information from the banking sector suggests there is money to borrow. There is available trade credit according to most sources. Businesses are sitting on more cash than they have in a long time and most companies are not having issues paying their bills. The problem is that almost everybody is worried about contingency plans and are sitting back as they wait for something to change.
The demand needed is not there yet and nobody is quite sure why. The jobless situation is certainly a worry, but the fact is that 91% of the workforce is employed. They are nervous about spending and as long as they stay on the sidelines, the manufacturing community does as well. “There are few in the mood to leverage themselves until they have a better sense of what to expect from the government and from the economy as a whole. Everything is more or less in place for expansion, but there has been no trigger thus far and there is plenty to make people more nervous about the future,” said Kuehl.
The online CMI report for July 2011
contains the full commentary, complete with tables and graphs. CMI archives may also be viewed online
Thursday, July 21, 2011 by
(Updated) A U.S. Bankruptcy Court judge has approved a plan for Borders to liquidate its assets following failed attempts to find a buyer.
Stung as a deal fell through at the last minute, struggling book-retailer Borders announced early this week that a potential bankruptcy auction would not go forward earlier and that the end of former giant through liquidation essentially was unavoidable.
Borders, whose Chapter 11 bankruptcy filings were made in February, had submitted to bankruptcy court a previously-announced proposal from Hilco and Gordon Brothers to purchase the store assets of the business and administer the liquidation process. Borders presently operates 399 stores, which employ more than 10,000 people. As many as three dozen stores and 1,500 Borders jobs could be saved as negotiations still are ongoing for retailer Books-A-Million to those locations over, which was predicted by Wanda Borges, Esq., of Borges & Associates LLC, in an interview with NACM earlier this week.
"A notice has been filed that says 'the debtors received a bid from a non-insider to purchase the inventory, furniture, fixtures, equipment and leases for approximately 30 stores for which the debtors reserve the right...to seek approval in connection with the sale hearing...to be held on or about July 21, 2011...if the bid becomes a qualified bid.' This week could still prove interesting in the Borders case -- we may yet see a continued business operation," Borges told NACM.
Products such as the Kindle and other growingly popular electronic book-reader products hit significantly at Borders’ business model, and both they and top competitor Barnes & Noble have been trying to break into the more techno-friendly niche. However, both have been playing from behind, so to speak.
"The big box retailers have suffered from internet sales -- books are now becoming really an alternative to electronic media," said Credit Management Association's Mike Joncich about the shifting industry paradign. "Borders took a wrong turn while people like Amazon and Barns & Noble took a right turn to embrace the electronic delivery method." Joncich added that he believes "the age of the big box retailers may be coming to an end."
Foreshadowing of Borders' demise into bankruptcy gained steam through late 2010 and, increasingly, throughout January. The big-box book retailer intimated twice in as many months that it would have to delay payments to creditors and/or vendors in an attempt to bolster its capital position. In additions, it was widely reported that Borders was trying desperately to renegotiate terms with financiers at Bank of America and General Electric, among others. These developments all helped tank a stock that was already trading below $0.50. A late 2010 poll conducted by The Street found that more than two-thirds of respondents believed a Borders Chapter 11 filing was likely. At least one major publishing company reportedly stopped all shipment of books to Borders for a time, fearing this week's announcement was an inevitability that would arrive sooner than later.
Brian Shappell, NACM staff writer
Friday, July 1, 2011 by
As noted an eNews story last week (link at bottom of story), a small business trade association took issue with the U.S. Small Business Administration’s declaration that nearly 23% of government contracting dollars went to small businesses, calling the statistics “misleading.” In a subsequent interview with National Association of Credit Management, which occurred after this week’s eNews deadline, the SBA is firing back saying its statistics are legit.
The new federal “Scorecard” on small business contracts for FY2010 included statistical findings that nearly $100 billion, 22.7% of all federal contracting dollars, went to small businesses. However, the American Small Business League (ASBL) alleged that 61 of the top 100 recipients of the so-called small business federal contracts in 2010 were, in reality, large firms. The association calls the Obama Administration’s assertions “dramatically inflated” and alleges some of the “small business” recipients in FY2010 included Lockheed Martin, AT&T and Hewlett-Packard.
Michele Chang, SBA’s senior advisor for government contracting and business development, told NACM that agencies have gone through painstaking processes to ensure the data is “clean” and free of data anomalies such as “miscoding.” She said SBA stands by the 22.7% number originally released and said an allegation from ASBL that only 5% of those receiving federal contracts were, in reality, small businesses simply was “not true.”
“We have a comprehensive data-quality process that ensures accuracy,” said Change. “We’re confident this is the cleanest data we’ve had and the cleanest it can be.”
However, when asked if Lockheed Martin, AT&T and Hewlett-Packard received money classified under small business allotments, Chang said she “can’t comment on them specifically.” Change noted that, sometimes, a smaller firm awarded an ongoing contract sometimes expands and becomes a mid-sized or large business or gets bought out/taken over by a larger firm; but she placed the onus on the businesses to report the happenings to SBA within 30 days for classification. When pushed, Chang admitted none of the aforementioned businesses would have been considered small business for a number of years and again declined to comment on whether any were classified among small businesses for the purpose of this year’s scorecard.
The original eNews story posted Thursday is available here.
Brian Shappell, NACM staff writer
Thursday, June 30, 2011 by
The overall economic narrative in the country for the last month has been a question as to whether the latest run of bad economic news is a temporary phenomenon or is the harbinger of much worse to come. As many analysts have asserted that this is all attributable to the earthquake and “Arab Spring” as those who assert a double-dip recession is setting up for as early as the third quarter. Most of the economic community is somewhere in between, but much of the interpretation lies within the latest run of data, and the National Association of Credit Management
Credit Managers’ Index (CMI) for June suggests the temporary impact position has some validity.
The dramatic collapse reflected in the May CMI eased up a little in June. The index numbers bounced around, but these variations were obscured somewhat by the fact that the index as a whole was flat. Considering this month, it is very apparent that the devil is in the details. The overall index number was exactly the same as it was in May—54.2—but there were significant changes in the combined sub-indices for favorable and unfavorable factors.
“The most distressing news comes from the number of credit applications received and the amount of credit extended,” said Chris Kuehl, PhD, managing director of Armada Corporate Intelligence
and NACM economic advisor. Many businesses seemed more cautious in the last month or so. Part of this is still related to the issues in Japan and the fear of higher commodity prices, but there is also some growing unease regarding political games. “Few really believe that the United States would put $100 billion at risk in its securities market by not raising the debt limit, but there is intense fear that Congress will take the game too far and provoke a reaction in the markets before it reaches an agreement,” Kuehl said. “It appears this trepidation is affecting the willingness of businesses to expand and seek additional credit. The good news is that sales have risen during this period; in the past, expanded sales usually beget more credit requests and more credit extended.”
The bad news in favorable factors has been balanced out by good news in some of the unfavorable factors. Many signs of distress weakened a little. There were fewer disputes and fewer dollars beyond terms. While there were also fewer bankruptcies, there were still concerns about the number of credit applications rejected and the number of accounts placed for collection. “The overall impression is that there is some separation taking place between those companies that have weathered the last few years and those that had been counting on an economic breakthrough to help salvage their financial position. This is a development we’ve referenced before and the pattern is still evident,” said Kuehl.
As the recession gives way to a slow recovery there is a series of expected moves from the different players in a given industry sector. The market leaders start to anticipate the end of the downturn, and they are ready to ramp up and make an attempt to grab market share from rivals. The best-prepared companies make the first moves forcing competitors to try to keep pace. Some do, but others begin to falter as the business they expected to cover their investment fails to materialize. Right below the market leader category is the market challenger and they are looking for the weak link among the market leaders. They push with their own expansion schemes in an attempt to supplant them. If they calculate correctly they make the jump; if they do not they fall back and start to struggle with cash flow. Right behind the leaders and the challengers are the market followers and they are waiting to see how the bigger battles play out before they choose which approach to emulate.
“Right now the economic recovery is waiting for the market followers to make their move. This is the biggest category of business—and the most cautious,” said Kuehl. The CMI data suggest that this sector is starting to have more active sales activity, which generally provokes more credit demand. The majority of credit requests have been coming from either the most important customers with the best credit or from those struggling on the bottom tier. “When the middle levels start to get earnestly engaged is when there is potential for more general overall economic growth.”
The online CMI report for June 2011
contains the full commentary, complete with tables and graphs. CMI archives may also be viewed online