June 30, 2022
June CMI Declines Again, But Credit Conditions Remain Strong
Annacaroline Caruso, editorial associate
The June NACM Credit Managers’ Index fell for the second-consecutive month, this time by 0.9 points to 56.6—its lowest reading since November. The decline reflects changes in consumer buying patterns and persistent inflation; but for now, credit conditions remain somewhat strong, said NACM Economist Amy Crews Cutts, Ph.D., CBE.
“I do still believe we will see a recession start within the next six to 12 months as the Fed’s policy actions take effect and the full bite of inflation is felt,” Cutts said. “With the Fed’s aggressive monetary tightening, I will be looking to the CMI to indicate when we are heading into a recession. The June CMI survey indicates that time is not now.”
The combined index of favorable factors dropped 3.3 points (64.8). Every factor within the index fell for the third month in a row, with a faster pace of decline this month. Sales led the drop with a 5-point loss (66.6); dollar collections, 4.6 points (60.9); amount of credit extended, 2.7 points (67.7); and new credit applications, 0.6 points (64.1). The declines in the favorable factor indexes are notable, but the levels of the indexes still indicate strong expansionary conditions.
Reversing the downward trend recorded in May, the combined CMI index for unfavorable factors rose 0.6 points to 51.1 this month. Half of the unfavorable factors deteriorated, starting with rejections of credit applications, which lost 0.5 points (50.2); accounts placed for collections, 1.3 points (49.7); and filings for bankruptcies, 0.6 points (55.8). The other half improved, with disputes gaining 0.3 points (49.4); dollar amount of customer deductions, 2.0 points (50.7); and dollar amount beyond terms, 3.9 points (51.1).
“The fact that favorable factors remain so solidly in the expansion column suggests continued strength in the economy; yet the widespread deterioration in the indexes, especially sales, suggests that we may have passed the peak,” Cutts said.
What CMI respondents are saying:
- “Expanded capacity (capital expansion) at one of our assembly plants and worked a couple of Saturdays to reduce backlogs at all final assembly locations.”
- “Our dealers are struggling with the freight expense for our product.”
- A cement shortage in the Western United States is having a great impact on our industry. We can only supply half of what we would normally to our customers. It is ugly in our industry right now.”
- “Order volume is down, but the price of steel is driving sales figures higher.”
- “Open orders continue to increase, but ‘realized’ sales dollars have declined due to supply chain issues resulting in delays getting products shipped and invoiced. Supply chain issues have not improved.”
- “Supply chain constraints have ‘limited’ sales and we are starting to see selective increases in delinquency in our more cyclical portfolios related to construction related.”
- “Backlog of backorders from overseas have been coming in. We anticipate shortages again for the next two months on key products from Asia (Japan, Thailand, Vietnam).”
If you would like to participate in the monthly CMI, sign up to receive survey participation alerts. For a complete breakdown of manufacturing and service sector data and graphics, view the June 2022 report. CMI archives also may be viewed on NACM’s website.
Construction Company Settles False Claims Act Allegations for $2.8 Million
Melissa P. Prusock, Matthew J. Cannon and Michael J. Schaengold, Greenberg Traurig LLP
On May 12, the U.S. Department of Justice announced a $2,804,110 settlement with Hensel Phelps Construction Company to resolve allegations that it violated the False Claims Act (FCA) by circumventing federal regulations designed to encourage contract awards to service-disabled veteran owned small businesses (SDVOSBs).
According to the settlement, Hensel Phelps, a general contractor that performs public and private construction projects, improperly claimed credit toward its small business subcontracting goals for subcontracts it awarded to an SDVOSB that it should have known was acting as a mere “pass-through” for a large business that was actually performing the work.
The settlement highlights DOJ’s continued focus on FCA enforcement actions involving allegations of small business contracting fraud. DOJ has entered into a number of settlements with large businesses resolving such allegations, including a recent $48.5 million with TriMark USA, LLC, which DOJ described as “the largest-ever False Claims Act recovery based on allegations of small business contracting fraud.”
DOJ’s interest in these types of cases stems from its theory that, under the “presumption of loss rule,” 15 U.S.C. § 632(w), the government’s “damages” arising from misrepresentations of small business size or status are equal to the entire value of the contracts awarded. Combined with the FCA’s treble damages provision, the presumption of loss rule makes small business contracting fraud an attractive enforcement target for the government, as well as whistleblowers who can share in the recovery.
These settlements underscore the significant risk of liability for large contractors teaming with small businesses that do not meet the requirements for the size or status they claim. The consequences of resolving such allegations are severe and are not limited to paying a hefty settlement amount. Contractors will also face the ramifications of DOJ publicizing the settlement amount and allegations, and could be subject to suspension and debarment proceedings by federal agencies after the settlement with DOJ has been finalized.
Global Agrifood Sector Suffers Core Challenges
OECD and FAO
The global agrifood sector faces fundamental challenges over the coming decade, particularly the need to feed an ever-increasing population in a sustainable manner, the impacts of the climate crisis and the economic consequences and disruptions to food supply linked to the war in Ukraine, according to a report released yesterday by the Food and Agriculture Organization of the United Nations (FAO) and the Organisation for Economic Co-operation and Development (OECD).
The OECD-FAO Agricultural Outlook 2022-2031 assesses medium-term prospects for agricultural commodity markets. The findings of the report underscore the crucial role of additional public spending and private investment in production, information technology and infrastructure as well as human capital to raise agricultural productivity.
Prices of agricultural products have been driven upward by factors such as the recovery in demand following the outbreak of the Covid-19 pandemic and the resulting supply and trade disruptions, poor weather for key suppliers, and rising production and transportation costs, which have been further exacerbated recently by uncertainties regarding agricultural exports from Ukraine and Russia, both key suppliers of cereals. Russia's role in fertilizer markets also has compounded already existing concerns about fertilizer prices and near-term productivity.
The report provides a short-term assessment of how the war may affect both global agricultural markets and food security. It underlines major risks to key commodity markets: equilibrium prices for wheat could be 19% above pre-conflict levels if Ukraine fully loses its capacity to export and 34% higher if in addition Russian exports are 50% of normal amounts.
A severe export shortfall from Ukraine and Russia in 2022-23 and 2023-24 absent a global production response suggests a further increase in the number of chronically undernourished people in the world following the COVID-19 pandemic.
Global food consumption—the main use of agricultural commodities—is projected to increase by 1.4% annually over the next decade, and to be mainly driven by population growth with the additional output to be mainly produced in middle- and low-income countries, while global agricultural production is projected to increase by 1.1% per year, with the additional output to be mainly produced in middle- and low-income countries. A prolonged increase in energy and agricultural input prices–such as fertilizers–will raise production costs and may constrain productivity and output growth in the coming years.
Ensuring well-functioning global trade and markets is essential for addressing both short- and medium-term challenges to food security. Globally, trade in the main agricultural commodities and processed products is projected to grow in line with production over the next decade. However, some regions are expected to export a growing share of their domestic production, while others are foreseen to import a growing share of their total consumption. This increasing interdependency between trading partners underscores the critical importance of a transparent, predictable and rules-based multilateral trading system.
First-Time Credit Congress Attendees Reflect on Their Experience
Annacaroline Caruso, editorial associate
This year’s Credit Congress & Expo was filled with more fresh faces than usual. More than 100 credit professionals took advantage of an NACM buy-one bring-one for $126 offer that paired a first-time attendee with a repeat attendee.
The offer attracted those new to the credit profession and veteran professionals who had never attended Credit Congress. Scott Evans, VP of credit at Foundation Building Materials LLC (Lancaster, PA), has been in the credit industry for more than 30 years. This year, Evans decided he could not pass up attending his first-ever Credit Congress, even though his company typically only sends credit managers who live closest to the Credit Congress location.
“I am in the early stages of looking at a complete order-to-cash automation platform and thought this would be a great way to see all the vendors in one location,” Evans said. “Automation of the credit team is really taking off, and it is great to see so many new options for the credit professional to choose from.”
The discount made it more affordable for companies to send more than one person and also provided them with a buddy who could show them the ropes. Several Credit Congress veterans brought new team members and watched proudly as they took their first steps into the world of business credit. Kyle French, credit manager at Blue Water Industries LLC (Jacksonville, FL), was one of those first timers. French started his business credit profession just two weeks before Credit Congress. “It was especially nice learning from others in the credit world, not just trained speakers, but actually taking classes from fellow credit professionals who do the same things we do each day,” he said.
French was accompanied by Carl Davidson, director of credit and collections at Blue Water Industries LLC. Davidson said taking someone new from the team enriched his Credit Congress experience as well. “It’s a great opportunity for a mentor and mentee to spend some quality time together and learn about credit and collections,” he said. “I’ve been to Credit Congress many times, and I’ve always found something that helps me do my job better every single time I get back to my office. And that was my hope for Kyle, that if he just picked up one thing that helps him better understand his job, or saves us from having a potential write-off down the road, then the conference was worth it.”
Britta Emerson, administrative assistant at Kilgore Architectural Products, Inc. (Spokane, WA), is also new to business credit. She said attending with someone who knows the ins and outs of Credit Congress made the experience more enjoyable. “Going with someone who is experienced and can point you in the right direction helped me not miss out on anything with so much going on,” Emerson explained. “I might not have gotten as much out of it if I went alone.”
Sheryl Rasmusson, CCE, vice president of business operations at Kilgore Architectural Products, Inc. (Spokane, WA), was more than happy to pass the torch to Emerson. She remembers others helping her in the same way during her early credit years. “I felt that [Credit Congress] would provide Britta with educational opportunities she couldn’t get anywhere else, and attending together also grew our business relationship,” Rasmusson said. “I know what NACM has done for me and my business career, and so to provide that opportunity for someone else, it makes me feel really proud.”
As newcomers, Emerson and French both said they learned a lot that will help them in their professional and personal lives. NACM’s 127th Credit Congress & Expo will take place from June 11-14, 2023 in Grapevine, Texas.
Credit Congress Spotlight Session: Take Your Game
to the Next Level—Using Emotional Intelligence to Advance Your Career
Speaker: Jake Hillemeyer, Dolese Bros. Co.
Duration: 60 minutes
Credit Congress Spotlight Session:
When and If to Help a Distressed Customer
Moderator: Chris Ring, Speakers: D'Ann Johnson, CCE, A-Core Concrete Cutting, Inc. and Eve Sahnow, CCE, OrePac Building Products
Duration: 60 minutes
Get Yourself Ready for 2024: Goal Setting and Future Planning
Speaker: Hailey Zureich, zHailey Coaching
Duration: 60 minutes
Mastering Mechanic's Liens in Iowa: Distinguishing Commercial, Residential and Public Projects
Speaker: Chris Ring, NACM’s Secured Transaction Services
Duration: 60 minutes