For much of 2011 and 2012, Fitch Ratings tended to be a little quieter and less controversial than its colleagues in the so-called “Big Three” credit ratings agencies. That has changed somewhat this year with some of Fitch’s moves, the latest of which being the first downgrade to a Chinese rating this century.

Though Fitch affirmed China’s Long Term Foreign Currency Issuer Default Rating (IDR) at the top,  'A+’ level, the agency downgraded the Long-Term Local Currency IDR to 'A+' from 'AA-'. It is the first downgrade of a Chinese rating since 1999. The reasoning is an increase of debt-related risk to China’s overall financial stability, according to Fitch’s release:
“Credit has grown significantly faster than GDP since 2009. China experienced the second-fastest expansion of credit in real terms, behind only Qatar, between end-2009 and end-June 2012. The stock of bank credit to the private sector was the third-highest of any Fitch-rated emerging market…Fitch believes total credit in the economy including various forms of "shadow banking" activity may have reached 198% of GDP at end-2012, up from 125% at end-2008.”

Still, for China, the Fitch outlook is set at “stable.” Granted, the agency noted this could all change with a steep and surprising downturn or, perhaps more poignantly, increased volatility among neighbors in the region, whether directly or indirectly involving China.

“The ratings assume there is no significant deterioration of geopolitical risk, for example a conflict between China and Japan or an outbreak of war on the Korean peninsula,” Fitch noted.

-Brian Shappell, CBA, NACM staff writer

As has been noted many times by NACM and FCIB, commerce in the Middle East is a very intriguing and potentially lucrative pursuit for companies. However, cultural and banking differences, not to mention general unfamiliarity, has rendered some credit department afraid to extend terms to businesses there in part because they don’t have feet on the ground, so to speak. The Dubai Chamber of Commerce and Industry believes businesses in the UAE should capitalize on that and market such expertise, even if the rollout of any widespread effort may be limited…for now. It's a development Western-based businesses should potentially monitor.

A new report from the Dubai Chamber, noting that Islamic Finance is expected to expand globally to about $2 trillion (USD) by 2015, urges business there to export their expertise in things like Middle Eastern business practices and, specifically, how Sharia Law can affect business dealings with those who are complaint. The first wave of a potentially widespread effort of focus would be on companies in regions where significant Muslim population already (Turkey, parts of Southeast Asia, etc.). Still, it would almost surely set the stage for more services to emanate from the Middle East designed for businesses in traditional, Western economic powers as well.

“Dubai banks are potentially well positioned to harness organic growth in these markets where Islamic products can appeal to the predominantly Muslim indigenous population,” the Chamber noted in its release about the study. “However, to compete with conventional international institutions, Dubai’s Islamic finance sector must scale and breach the critical mass required to make products feasible.”

The study also, importantly, noted that the there is a growing young population that still abides by Sharia law that has garnered significant increases in income in recent years.

-Brian Shappell, CBA, NACM staff writer

After reviewing arguments from last week from Stockton, CA officials and creditors’ representatives, a bankruptcy judge has ruled that the struggling city is eligible to file for Chapter 9 bankruptcy. However, the judge did little to immediately clear up other points of contention or explain the basis for how he ruled.

U.S. Bankruptcy Judge Christopher Klein ruled Stockton did meet the threshold, even one heightened by a 2011 change trying to slow potential filings, to officially enter into municipal bankruptcy. However, there was little explanation released publicly Monday to explain the decision nor was there clarity provided on the issue of renegotiating pension terms.

“There’s no explanation yet, just an order held that they were eligible,” said Bruce Nathan, Esq., of Lowenstein Sandler LLP. “It seems unknown what the court based its decision on, as a number of requirements were litigated here. So, it’s vague what the court did other than to say that it holds a Chapter 9 is usable.  It’s almost anti-climatic at this point.”

Arguments wrapped last week in the case, which is one of the first to include potential plans to not only slash retiree and pension benefits, but also short bondholders, creditors and other insurers. Representatives for the city officially filed for Chapter 9 protection in federal court in the state capital of Sacramento in June 2012. Negotiations since that time, mandated by a then-new California state law requiring attempts to work out solutions without court judgments or hastily-considered filings, failed.

Stockton is among many U.S. cities, including several others in California, struggling to get out of crushing debt wrought by expensive union contacts, pension payments and tax base shrinkage caused by the real estate collapse, for which it boasts the nation’s second-highest foreclosure rate.

-Brian Shappell, CBA, NACM staff writer

The negotiations over the Trans-Pacific Partnership – one involving a number of Southeast Asian nations as well as the United States, Canada and Peru, among others – are not going that well, and there is not much reason to assume that this situation will change much. The sticky issue is the same as it often is: agriculture.

The TPP is supposed to bring together the nations of the Pacific in some kind of trade partnership that will advance their respective economies. This is not the first time that there has been an attempt to unite the nations touched by the Pacific and it will doubtless not be the last. Japan is now considering membership, and that is part of what has been roiling trade talks.

There have been some agreements on the most noncontroversial aspects of trade, but the more critical parts have been largely ignored, as there is no consensus on what to do about them. The issue of access for farm output is always a major point of contention, and it has preoccupied the current gathering. Opposition in Japan is coming from the farmers as they are dead against any significant import of food that is grown in Japan, however inefficiently. The U.S. is all for Japan joining, but American farmers (and their lobby) want nothing to do with a trade pact that doesn’t give them access to new markets.

The inclusion of some Latin states on the Pacific border also complicates matters, as U.S. farmers are already pressured by the output from Mexico and Chile and they are not eager to see an expanded level of competition. U.S. issues involving the budget battle also could have an impact on appointment of trade officials and staff as well as willingness to sign onto anything that could lead to more imports in certain categories.

-Armada Corporate Intelligence

The statement made by this month’s Credit Managers' Index, available now at www.nacm.org, was essentially “steady as she goes.” The CMI fell by less than a point from February, with both favorable and unfavorable factor indexes dipping by roughly equal amounts. Some sub-factors showed significant movement, but there was no clear signal from any of the factors as far as financial stress is concerned, or anything to cause much confidence either.

Among areas of concerned is a notable decline in sales levels in March, though it not far off the pace of late 2012. “The main concern is that for the last year, the sales reading has been averaging in the low 60s and now there seems to be a struggle to get there again,” said NACM Economist Chris Kuehl, PhD. On the encouraging side, the new credit applications foretell a desire for expansion on the part of businesses.

“Businesses are starting to more aggressively pursue credit,” said Kuehl. “However, serious issues remain in balancing the desire for more credit and creditworthiness.” He also added that unfavorable factor index statistics indicated there are more companies in distress than was the case a month or two earlier, and that likely reflects the consternation regarding government inactivity on key issues.

Overall, the economist noted that the March CMI is “telling roughly the same story as other economic indicators of late…Nothing is suggesting a return to recession, but neither is there a sure sign of an imminent breakout in the manufacturing or service sectors.”

-NACM staff
For complete March CMI data and analysis, visit http://web.nacm.org/cmi/cmi.asp.

The previously confident, almost boastful bloc of nations known as the BRICs (Brazil, Russia, India and China and recently added South Africa) seem to be making a lot less credible noise at its latest annual summit involving leaders. At least one expert believes it’s foretelling the reality that the bloc was an unnatural fit from the start, and more are coming to that realization.

News coming out of the BRICs meeting has not featured much in the way of firm policy being made other than the establishment of a $100 billion foreign currency pool to shield member nations from wild currency valuation swings caused by other nations struggling with recession or economic malaise. What was expected to be the big news heading into the meeting was a firm agreement to establish a BRICs development bank, one designed to challenge traditional economic powerhouses like the International Monetary Fund. However, reports indicate that some major obstacles have impeded a functional agreement between the BRICs themselves.

Octávio Aronis, an attorney with Brazilian law firm Aronis Advogados with deep involvement in credit and collections, characterized the BRICs as not being a real member bloc in their actions: "...We are all so completely different from each other. They’re four or five countries that are growing, but all with situations and numbers." It's similar to the context of a February NACM interview with Ludovic Subran, chief economist at Euler Hermes, Subran questioning how wise it is to consider them as a grouping or bloc given the many massive differences.

-Brian Shappell, CBA, NACM staff writer
See extended version of this story with more analysis in this week's edition of NACM eNews, available Thursday afternoon via email and at www.nacm.org in the "Resources" pulldown menu.

Less than one year after its lavish opening, Revel AC Inc. has made official its filing for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Camden, NJ. The filing, heavily rumored since last month, was made following a debt-for-equity swap agreement for which secured lenders signed off. The bankruptcy hearing is tentatively slated for mid-May.

Revel, featured as a potential filer just days after NACM’s “Industries to Watch” series highlightied the potential problems that could be caused by a glut of gaming operations in the Eastern United States, saw rumors spread like wildfire that the operator of Atlantic City’s Revel casino/resort property sought high-powered attorneys specializing in bankruptcy filings to look at its finances. Such finances already include $1.5 billion of debt and just over $1 billion in assets at a time when economic growth seems to be easing, in addition to more competitors in neighboring states coming online with legalized gaming operations and the budgets of potential local customers still impacted by the lingering effects of Hurricane Sandy.  

Patrick Spargur, ICCE, credit and collections manager with Bally Technologies, Inc. speculated there could be two or three filings on the part of Atlantic City-based operations alone this year. Creditors selling directly to or downstream from Eastern-based gaming operations in any significant capacity need to be aware of the potential trend.  

-Brian Shappell, CBA, NACM staff writer

As the Cyprus Parliament rejected almost universally-panned bailout terms that even the ECB’s staunchest supporters were hard pressed to defend, and the aftermath of the ham-handed bank rescue is being felt around the world.

Markets saw a mass sell-off and banks a run on deposits as the ECB’s terms sought to tax deposits within Cypriot banks. Though intended to punish and raise money from what amounts to rich Russian tax-dodgers keeping money there, the average Cyprian would soon find their own formerly unassailable savings coming under a tax, something legally in a gray area, at best, in the EU.  

“It would be very hard to overestimate the damage caused by the weekend decisions by the ECB, Cypriot leaders and leaders of the euro zone,” penned NACM Economist Chris Kuehl, PhD in his daily column for FCIB members. “The decision to rescue the banks of Cyprus on the backs of depositors may have triggered the biggest bank meltdown Europe has yet seen, and it is simply beyond comprehension that the authorities involved in this decision could not have foreseen the reaction. Prior to this decision there was a sense that the powers that be in the ECB, IMF and euro zone at least knew what they were doing, even if their course of action was unpopular. That veneer of confidence has taken some very significant hits.” He added that, short of a reversal, people in other EU countries could find themselves asking: "Why wouldn't they do this to us?"

-Brian Shappell, CBA, NACM staff writer
Extended story will be available in this week's edition of NACM eNews, available Thursday afternoon at www.nacm.org, in the Resources section.
 

It was noted in last week’s edition of new NACM feature “Industries to Watch” that solar producers in the United States were facing issues that included too many players operating in the industry with respect to actual demand. The problems have also been notable in the European Union. Perhaps ironically, the latest solar company in trouble is based in China and was among the key examples of allegations of price dumping and illegal government subsidies that have hurt U.S. and EU-based operations.

Suntech generated the most press about a solar company since the collapse of California-based Solyndra, a firm that garnered millions in U.S. government grants before fraud allegations and financial mismanagement derailed its operations, just before the weekend when it missed its bond payments. Suntech, one of the largest solar manufacturers in the world, has been widely speculated to have experienced a cash crunch likely to spiral into some sort of insolvency-based restructuring in the near future. Such troubles underscore the out-of-balance ratio of solar product manufacturers/service providers and consumers willing to pay for them.

However, the news could actually, in a roundabout way, be helpful for U.S. and EU-based producers. With such a large producer stumbling significantly, that is one more competitor (and an important one) that is potentially out of the saturated pool or at least not in a position to grow market share for a time. Granted, that’s not to say the problems facing solar producers in the U.S. or EU have gone away…far from it.

-Brian Shappell, CBA, NACM staff writer

As predicted in a 2011 Business Credit magazine article, the United States’ solar energy industry has taken its share of lumps over the last two years, but there are still those purporting the massive potential that solar holds. Whether true or not, there are real and continuing risks for everyone involved in the industry, and the government budget fight and “sequester” only adds a whole new dimension to potential problems, especially for survivors of the first wave of domestic solar-related bankruptcies.

U.S. product manufacturers are contending with what they see as unfair assistance to competing solar manufacturing sectors in Asia by their governments, especially that of China. The U.S. placed tariffs on Chinese imports, but the measures were seen as somewhat weak and coupled with evidence that some Chinese firms are simply off-shoring operations to areas like Singapore where such tariffs aren’t in play. In addition, the glut of U.S. producers left over from the cheap lending days of the financial boom of the late-2000s caused an industry saturation that became a real problem when demand fell during lower growth years. The two issues led to several high-profile bankruptcy filings headlined by that of Solyndra, which had ties to key Obama Administration fundraisers investigated for widespread fraud and reaping huge amounts in government grants.

Michael Joncich, manager of the business insolvency department for NACM affiliate Credit Management Association for NACM affiliate Credit Management Association, was among those who predicted the problems in 2011. He now speculates that reduced federal subsidies, grants and other assistance aren’t likely to help current matters. “Government can make or break an industry. I don’t really know if the shakeout is done yet,” he said.

Joncich noted that a colleague in the liquidation business recently learned everything he could about green businesses, thinking it was a bubble ready to pop, especially once it became apparent that the government was retracting its “generous funding” of those industries, including solar. “The observation is that they can’t seem to fund themselves,” he said. “When the government pulls back because of federal budget cutbacks, many can’t survive it,” he said.

It doesn’t mean all solar manufacturers are doomed, but there are enough red flags that virtually all creditors dealing with customers related to the solar industry should be paying close attention to them, their accounts and their terms.

- Brian Shappell, CBA, NACM staff writer
 

There are many reasons for a company to establish in a certain area, and the motivations are as varied as the companies and their markets. That said, there are some motivations that appear more often and, in the last few years, they have grown in importance as the United States has become more familiar with concepts like “on‐shoring,” “re-shoring” or “near‐shoring.”

The first motivation has always been a factor, but in the past 50 years it had faded somewhat. The great advance in the 1960s and 1970s was the ability to mass produce, and that produced an era driven by the need to make the same item for every market as cheaply as possible. Japan was the first nation to ride that wave. However, the consumer began to demand far more unique goods. Thus, it is more important to be as close to the market as possible so that full use of the ability to customize could take place. As such, many American companies are migrating back to be closer to core markets.  

The second motivation is connected to the ability to manage. As the consumer has become more demanding and the production process has become more complex, the control issues have become more important, and it is simply harder to retain the preferred level of quality control when the core operations are thousands of miles away.

The third motivation is the deterioration of the original advantage. The vast majority of companies that elected to locate production overseas did so for reasons including cheaper price of labor or to escape regulation of labor or environmental protections. These costs have increased in the developing world, narrowing the gap. It’s a notable issue in China, particularly.

The fourth motivation is that getting the production from these nations to the markets where they will be sold is not cheap, and anything transportation-related grows more expensive all the time.

Finally, there is a growing awareness of where a product is made, and consumers are starting to react. Granted, there is realistically a limit to how much the consumer is going to alter their spending habits. This is as close to a level playing field as U.S. manufacturers of consumer goods have gotten in decades.

-Armada Corporate Intelligence

The Federal Reserve’s Beige Book economic roundup this week illustrated an economy improving and a pace of growth quickening. Reports from the 12 Fed Districts found, overall, a “modest to moderate” expansion since the Beige Book release just short of two months ago. Importantly, consumer spending is up, perhaps foreshadowing an uptick in all-important confidence.

However, two key districts – Boston and Chicago – showed much slower growth amid its industries that are more sensitive to ongoing problems with Congress and the Obama Administration simply not being able to work through issues like the budget/debt/”Sequestration.” San Francisco performed better than the two previously mentioned districts, but has some similar concerns of note.

Also threatening potential spring growth of the St. Louis and Kansas City regions is continued uncertainty within the agricultural sector. Both districts are heavily dependent on it, and optimism for a strong crop year, especially in a Kansas City district struggling with drought conditions, doesn’t seem to be especially high.

Still, the majority of district had much more positive news than negative on expansion in areas including sales (especially automotive), demand for services (notably technology and logistics-based), residential real estate, manufacturing (albeit modestly), labor market conditions and post-Hurricane Sandy reconstruction (New York and Philadelphia districts, primarily). To keep the overall good news rolling and growth pace accelerating though, the U.S. government is going to have to find ways to avoid the type of brinksmanship that has been all the rage on Capitol Hill over the last few years, NACM Economist Chris Kuehl, PhD hinted:

“In general, the Beige Book report holds that the economy is doing relatively well, but the stress in each report is that conditions would be far better were it not for the anchor of the budget crisis. The uncertainty factor is still a big concern nationwide.”

-Brian Shappell, CBA, NACM staff writer

New learning tracks and the evolution of professional designations are part and parcel for keeping up with the varying and progressing needs of today’s business professionals, including those in credit. After a review of existing programs, and careful consideration and development, NACM announced in March the latest in a long line of world-class program designations: The Certified Credit and Risk Analyst (CCRA).

The CCRA is unlike NACM’s other longtime designation programs in that it is a standalone program. It exists outside of NACM’s “Career Roadmap” that includes the Credit Business Associate (CBA), Credit Business Fellow (CBF) and Certified Credit Executive (CCE), the latter of which is still NACM’s top-level designation for members.

The CCRA was created after Financial Statement Analysis II was removed from the CBF designation, with the new requirements effective January 1, 2013. NACM’s Education Department updated the extracted course and renamed it Financial Statement Analysis, Interpretation and Credit Risk Assessment to better reflect its emphasis. The updated version is now considered by NACM to be the cornerstone of the CCRA.

“We realized that Financial Statement Analysis II wasn’t for everyone, and that it served as a bit of a roadblock to the CBF for some members. However, we also recognized that some credit department personnel need that in-depth, advanced financial analysis background, which is why this standalone designation was created,” said NACM President Robin Schauseil, CAE.

As with other designation courses, Financial Statement Analysis, Interpretation and Credit Risk Assessment can be taken by itself as a certificate session. However, earning the CCRA requires the completion of three courses: Basic Accounting, Financial Statement Analysis I and the new Financial Statement Analysis, Interpretation and Credit Risk Assessment. The methods available to complete each course vary and can be found under “Education” at www.nacm.org. The first opportunity to take Financial Statement Analysis, Interpretation and Credit Risk Assessment is a five-segment session and exam held at Credit Congress from May 18-23.

Though separate from the “roadmap” lineup of certifications, the CCRA will serve as key program for credit professionals tied to deeper financial analysis responsibilities, and for those who will be in the future. It is also designed to build background and add key skill sets for those already pursuing a designation. “If you’ve earned your CBA and want, or need more financial analysis skills, this is for you,” Schauseil said. “It’s a great precursor to the CCE even though it’s not a part of the NACM career roadmap. It’s also a great precursor for NACM's Graduate School of Credit and Financial Management.”

To learn more about the CCRA, visit Education at www.nacm.org, or call 410-740-5560.

Driven largely by a notable increase in imports of foreign oil products, the U.S. trade gap grew to $44.4 billion in January, the Commerce Department announced Thursday. The troubling, near 17% surge from December in the trade gap was about $2 billion more than forecast.

Oil pricing didn’t change that much, perhaps keeping the trade gap from worsening by more than it did, though the rise was already the largest increase in 10 months. Overall, exporting activity also fell, by about $1.2% despite small gains in categories like automotive and food products.

Despite that, expectations are still high for sign cant export growth in 2013. Still, the more than $27 billion deficit to China in just the first month of the year is troubling coming off the record nation-to-nation deficit posted in 2012.

-Brian Shappell, CBA, NACM staff writer

The U.S. love affair with the car shows little sign of deterioration, but the consumer generally has started to show some signs of buyer fatigue. There is now a battle of sorts between the motivations that lead to more car purchases and those that would signal a slowdown. The average age of a car now exceeds 11 years, which would have meant massive replacement only a few years ago. Today, the older car is perfectly serviceable, and people are far less likely to be forced to buy a new one.

The latest statistics indicate a 3.7% increase in the last month -- that would suggest that there will be around 15 million cars sold this year. While not awful, it remains far of the pace of heady recent years. The big question is whether that pace will be sustained with all the seeming consumer uncertainty evident these days.

Another pressing question revolves around what the banks will do. Up to the present, banks have been unusually active in terms of car loans because these have been about the only reliable place for them to expand. However, car loans have been packaged in the same way as that of mortgages last decade. As such, concern is rising that banks have been getting into risky territory with such lending, leading experts to ponder when said willingness to lend will come to a crashing halt. That would have an impact on more than just those seeking to purchase cars.

-Armada Corporate Intelligence
 

Talk of whether or not the United States’ natural gas holdings are bringing the nation closer to energy independence hasn’t been a true top-headline-grabber to date. That could change though as the push seems to be growing that is calling for the exporting of liquefied natural gas products in the near future as well as proclamations of some type of energy renaissance. However, some analysts believe talk of “independence” is way off the mark even as steps (perhaps baby steps) have been taken.

A bipartisan group of lawmakers including Sens. James Inhofe and Mary Landrieu addressed U.S. Department of Energy Secretary Steven Chu last week in a public letter highlighting the findings of the NERA Economic Consulting Report on natural gas exporting. The lawmakers attacked critics of increased exporting of natural gas and expansion of production amid report findings that it would be in the best economic welfare of the country to do so. They also note that production is expected to well outpace demand as infrastructure needs catch up, meaning price gouging on domestic turf remains somewhat unlikely.

Days later, the American Petroleum Institute – who noted “an energy revolution is underway in the U.S. – rolled out an increased media campaign talking of the job creation benefits of exporting natural gas. Meanwhile, U.S. Energy Information Administration noted the country’s energy intensity, the amount of energy it takes to produce $1’s worth of economic output, continues to drop for a number of reasons. Part of that stems from changes in U.S. energy production and consumption as well as structural economic changes. However, NACM Economist Chris Kuehl, PhD, is among many suggesting that those talking of energy independence should pump the brakes a bit, so to speak.

Kuehl noted in a recent column for FCIB that all the talk of more energy independence, including the boost in domestic oil production, fails to address that the United States still imports huge amounts of oil. He estimated that of the 20 million barrels per day consumed domestically, about 14 million barrels come from international sources. About 25% of that comes directly from the Middle East. That’s only likely to grow as when the economic recovery, long stalled, actually kicks into a higher gear inevitably.

“The U.S. is not energy independent and may never be given the needs of an expanding economy,” said Kuehl. “When the recession still gripped the country, oil consumption was down. But, as the economy recovers, the gap between energy the U.S. can produce and what it needs will widen.”  In short, he estimated the United States is very unlikely to approach anything that even resembles true energy independence any time in the near future.

-Brian Shappell, CBA, NACM staff writer

The Credit Managers’ Index (CMI), due for release by NACM on Thursday morning, isn’t expected to set any records, but the February statistics do appear set to track more favorably than in January.

One of the most important factors to watch, sales, is expected to show an uptick even though non-business factors seem to be playing a significant role as a drag on the category. “The strength of this indicator can’t be overlooked, as this signals substantial activity despite all the concerns registered over the ‘fiscal cliff,’ the debt ceiling and the sequester” said NACM Economist Chris Kuehl, PhD. “However, the impact has been hard to figure out. On the one hand, it is pretty obvious that the lower GDP number from the fourth quarter was directly related to fiscal cliff concerns within the business community, but the latest revisions show no dip into recession, as first thought.”

Unfavorable factor index categories are expected to show progress or at least stability. Also expected to track well are service-side indicators, in part because of what appears to be the long-awaited rebound of the housing sector. Granted, it has a long way to go. The manufacturing sector likely will be dicier in the February CMI.

Words like “caution” and “reluctance” appear to be the most bandied about in the manufacturing world, again, most likely because of ongoing problems to get things done by Washington, DC lawmakers. And, since manufacturing-based decisions must be made in advance, confidence in where things are going is crucial. That has been largely absent in advance of the February CMI.

“All of this is taking place against a backdrop of political drama that many believe will cause serious economic dislocation before all is said and done, and it seems to be the manufacturing sector that is harboring the most concern,” said Kuehl. Fortunately, with some of the most stressed sectors on the service side making what look to be a series of comebacks, it should be enough to offset the uncertainty that is dogging manufacturing at present.

-National Association of Credit Managment

The February CMI, with full statistics and analysis, are available now at www.nacm.org.

Moody’s Investors Service caught a lot of attention going into the weekend by downgrading the United Kingdom’s domestic and foreign-currency government bond ratings by one notch. However, what’s been covered significantly less in the mainstream media headlines is the ratings agency’s bright outlook on the UK’s stability going forward.

Moody’s noted it lowered the credit rating because of continued growth outlooks in the medium term in part because of its own austerity measures along with spillover from problems with its debt-hobbled European Union counterparts. While it predicted the slower growth will stretch into the second half the decade, Moody’s got significantly less attention for keeping the UK in a “stable” category and, within parts of its statement explaining the downgrade yet a stable outlook, seemingly gushing about the sovereignty:

“The UK's creditworthiness remains extremely high, rated at Aa1, because of the country's significant credit strengths. These include a highly competitive, well-diversified economy; a strong track record of fiscal consolidation and a robust institutional structure; and a favourable debt structure, with supportive domestic demand for government debt… the underlying economic strength and fiscal policy commitment which Moody's expects will ultimately allow the UK government to reverse the debt trajectory.”

-Brian Shappell, CBA, NACM staff writer

The assessment of the commodities markets in the world was already complex and threatening. The U.S. drought is not showing any signs of breaking up, and it is already clear that wheat harvests will be less than in previous years. The situation is going to get much worse and soon as Russia apparently is preparing to buy more grain from the western states than it has in many years.

The crop in Russia was a disaster, and there are already serious shortages months before the next harvest is due. The assessment of this year’s output is that it will be worse than last year, setting the scene for some notably high crop prices in the very near future.

Unless the spring rains arrive as they have in past years, the United States will be heading into the system with very low soil moisture, meaning corn, wheat and soybeans will be affected. Back in the 1970s, the Soviet Union executed what was referred to as the “Great Grain Robbery,” bringing over 10 million tons of wheat from the U.S., creating a domestic shortage here. That now seems to be the setup for this year unless there is some sizeable rebound in supply. Given the forecast for U.S. farming, such a rebound appears unlikely.

-Armada Corporate Intelligence

Despite hope of clarity-based improvement after the election and avoidance of the fiscal cliff (albeit temporarily), the credit quality of U.S. small businesses decreased in a troubling, considerable fashion in 2012’s final quarter. Analysts in a new study report that the bad news can’t be hung on the easy scapegoat, Hurricane Sandy.

The Experian/Moody’s Analytics Small Business Credit Index noted that improvement in small business’ aggregate credit quality is expected to rise by late this year or early 2014. However, that is a part of the scant good news in the index, which declined 6.8 points to land at a historically low level of 97.3. The authors noted that reduced personal income growth drove a domino effect of lower retail sales, more cautious interest in investment on the part of the businesses and, in an increasing number of cases, borrowing to cover payroll expenses. It all adds up to smaller outfits having problems paying down credit obligations. The study noted:

“Balances less than 60 days overdue rose nearly 20% on the quarter…this was enough to push the share of delinquent dollars higher, to 9.7% from 9.4% in the third quarter...Nearly all of the climb is the result of firms that previously had been current on their payments falling behind.”

The study also dispelled the notion that a driver of the poor results could be tied to the recent storm, noting Sandy had very little real impact on statistics for the quarter.

- Brian Shappell, CBA, NACM staff writer

For more on this study, view this week's edition of NACM's eNews, available Thursday afternoon. Watch your inbox for the email link, or go directly to the eNews page at www.nacm.org.