Atradius Country Report - United States – April 2014

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Washington DCAtradius Country Report
United States – April 2014

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Overview
General information Most important sectors (% of GDP, 2012)
Capital: Washington, D.C. Services: 79.7%
Government type: Federal republic Industry: 19.1%
Currency: US dollar (USD) Agriculture: 1.2%
Population: 318.9 million
Main import sources (2012, % of total) Main export markets (2012, % of total)
China: 19.0% Canada: 18.9%
Canada: 14.1% Mexico: 14.0%
Mexico: 12.0% China: 7.2%
Japan: 6.4% Japan: 4.5%
Germany: 4.7% United Kingdom: 3.5%
Key Indicators
**
2011 2012 2013 2014* 2015*
Real GDP (y-on-y, % change) 1.8 2.8 1.9 2.8 3.1
Consumer prices (y-on-y, % change) 3.1 2.1 1.5 1.7 2.0
Personal consumption (y-on-y, % change) 2.5 2.2 3.0 2.6 2.9
Retail sales (y-on-y, % change) 4.2 3.1 2.8 1.1 2.4
Industrial production (y-on-y, % change) 3.4 3.6 2.6 3.3 3.7
Unemployment rate (%) 8.9 8.1 7.4 6.4 5.9
Business investment (y-on-y, % change) 7.6 7.3 2.8 5.5 5.7
Export of goods and non-factor services
7.1 3.5 2.7 5.5 6.2
(y-on-y, % change)

Fiscal balance (% of GDP) -9.4 -8.1 -4.6 -4.8 -3.9
Government debt (% of GDP) 117.3 119.6 120.9 121.5 120.6
* forecast
Sources: Consensus Economics, IHS Global Insight

Main economic developments
Growth slowed in the last quarter of 2013
According to the US Bureau of Economic Analysis (BEA), the quarterly increase in real gross domestic product (GDP) was
just 2.6% in Q4 of 2013, compared to a 4.1% quarterly rise in Q3. This deceleration in growth is mainly attributable to
lower state and local government spending and less investment as a consequence of the temporary government shutdown
in autumn 2013. However, private consumption and exports contributed positively to GDP. The US economy grew 1.9%
in 2013, but a surge in growth of 2.8% is expected in 2014, and 3.1% in 2015 (see chart below) based on robust private
spending and increasing investment and net exports.
Source: Consensus Forecasts (Survey date March 11, 2013)
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”The US is back on track to achieve robust
economic growth in 2014 and 2015, based on
consumer spending, investments and net exports.
However, the labour market and political bickering
over public finances remain potential stumbling
blocks for long-term economic performance.“
Atradius Economic Unit
(% change on previous year)
GDP growth
5
4
3
2
1
0
2011 2012 2013 2014* 2015*
1.8
2.8 2.8
1.9
3.1

Private consumption: push factors in 2014

Consumer confidence increased considerably in the first six months of 2013 before stabilising (see chart below). Private
consumption increased 3.0%, following a 2.2% increase in 2012.
Source: The Conference Board; IHS Global Insight
Consumer wealth has been boosted by increasing home prices. The collapse in house prices was one of the triggers of the
2008 financial crisis. Prices began falling in 2006 and didn’t stabilise until 2009. The recovery in prices started in early 2012
and continued into 2013 (see chart below). Generally, home prices are now increasing across the country. According to
the S&P/Case-Shiller index of property values in 20 cities, home prices have increased by more than 20% from their low
point of early 2012. House sales are still benefiting from low prices in many areas and low mortgage rates. Home owners
who have seen their equity rise will be more likely to borrow and to spend while, at the same time, delinquency rates have
stabilised.
Source: S&P Case Shiller; IHS Global Insight
As in 2012, household finances continued to improve in 2013, with consumers reducing their debt and improving their
debt-to-income ratio over the past year. Net wealth is also much better, thanks to both lower debt and higher asset values,
such as housing and the stock market. This provides a solid foundation for further improvements in consumer spending
growth.
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(Rebased house price level index)
National house price developments
Consumer wealth has been boosted by increasing home prices. The collapse in house pric
was one of the causes of the 2008 financial crisis. Prices began falling in 2006 and didn’t
stabilise until 2009. The recovery in prices started in early 2012 and continued into 2013 (
chart below). Generally, home prices are now increasing across the country. According to
S&P/Case-Shiller index of property values in 20 cities, home prices have increased by mo
than 20% from their low point of early 2012. House sales are still benefiting from low pric
in many areas and low mortgage rates. Home owners who have seen their equity rise will
more likely to borrow and to spend while, at the same time, delinquency rates have stabili
As in 2012, household finances continued to improve in 2013, with consumers reducing th
debt and improving their debt-to-income ratio over the past year. Net wealth is also much
better, thanks to both lower debt and higher asset values, such as housing and the stock
market. This provides a solid foundation for further improvements in consumer spending
growth.
According to the US Bureau of Labour Statistics, the unemployment rate increased to 6.7%
February 2013: up 0.1% from January, but down 1% year-on-year. IHS Global Insight
expects unemployment to decrease to 6.4% in 2014 from 7.4% in 2013. However, much o
Consumer wealth has been boosted by increasing home prices. The collapse in house prices
was one of the causes of the 2008 financial crisis. Prices began falling in 2006 and didn’t
stabilise until 2009. The recovery in prices started in early 2012 and continued into 2013 (s
chart below). Generally, home prices are now increasing across the country. According to t
S&P/Case-Shiller index of property values in 20 cities, home prices have increased by more
than 20% from their low point of early 2012. House sales are still benefiting from low price
in many areas and low mortgage rates. Home owners who have seen their equity rise will b
more likely to borrow and to spend while, at the same time, delinquency rates have stabilise
As in 2012, household finances continued to improve in 2013, with consumers reducing the
debt and improving their debt-to-income ratio over the past year. Net wealth is also much
better, thanks to both lower debt and higher asset values, such as housing and the stock
market. This provides a solid foundation for further improvements in consumer spending
growth.
(Index 100 = Neutral)
Consumer confidence

According to the US Bureau of Labour Statistics, the unemployment rate increased to 6.7% in February 2013: up 0.1%
from January, but down 1% year-on-year. IHS Global Insight expects unemployment to decrease to 6.4% in 2014 from
7.4% in 2013. However, much of this decrease is the result of people leaving the labour market rather than a growth in the
number of jobs. The percentage of the potential work force actually employed has decreased: from 66% before the start of
the credit crisis to its current 63%. The labour market therefore remains a potential weakness in the recovery of consumer
confidence and spending.
Source: IHS Global Insight
The US consumer price index decreased to 1.5% in 2013 from 2.1% in 2012. In 2014 consumer prices are forecast to
increase modestly, by 1.7%.
Despite the continued fragility of the labour market rebound, consumer spending is currently forecast to increase 2.6% in
2014 and 2.9% in 2015 (see chart overleaf). The growth is expected to be supported by increased home prices, a buoyant
stock market and relatively low consumer price inflation. Retail sales are expected to increase 1.1% in 2014 and 2.4% next
year.
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(Annual percentage change)
Consumer price inflation
The US consumer price index decreased to 1.5% in 2013 from 2.1% in 2012. In 2014 consumer prices
are forecast to increase modestly, by 1.7%.
Despite the continued fragility of the labour market rebound, consumer spending is currently forecast
to increase 2.6% in 2014 and 2.9% in 2015 (see chart below). The growth is expected to be supported
by increased home prices, a buoyant stock market and relatively low consumer price inflation. Retail
sales are expected to increase 1.1% in 2014 and 2.5% next year.
Bitte Graphik einfügen
Personal consumption
Source: Consensus Forecasts (Survey date 11 March 2013)
(Percentage points)
Unemployment and participation
The US consumer price index decreased to 1.5% in 2013 from 2.1% in 2012. In 2014 consumer prices
are forecast to increase modestly, by 1.7%.
Despite the continued fragility of the labour market rebound, consumer spending is currently forecast
to increase 2.6% in 2014 and 2.9% in 2015 (see chart below). The growth is expected to be supported
by increased home prices, a buoyant stock market and relatively low consumer price inflation. Retail
sales are expected to increase 1.1% in 2014 and 2.5% next year.

Industrial production growth expected to improve
After falling 11.4% in 2009, US industrial production rebounded in 2010-2013. Though the growth rate slowed to 2.6%
last year, industrial production growth is forecast to rise 3.3% in 2014 and 3.7% and 2015.
Business confidence in the manufacturing industry increased in 2013, but fell again in early 2014.
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Industrial production growth expected to improve
After falling 11.4% in 2009, US industrial production rebounded in 2010-2013. Though the growth
rate slowed to 2.6% last year, industrial production growth is forecast to rise 3.3% in 2014 and 3.7%
and 2015.
Industrial production
Business confidence in the manufacturing industry increased in 2013, but fell again in early 2014.
Business investment set to improve
Personal consumption
5
4
3
2
1
0
2011 2012 2013 2014* 2015*
2.5
2.2
2.6
3.0 2.9
Industrial production
5
4
3
2
1
0
2011 2012 2013 2014* 2015*
3.6
3.3
2.6
3.7
3.4
(Manufacturing industry index, non-additive or stock figures)
Business confidence

Business investment set to improve
Business investment growth slowed in 2013 but is set to improve in 2014 and 2015 (see chart below).
Source: Consensus Economics (Survey date 11 March 2013)
Stronger export growth in 2014 and 2015
According to IHS Global Insight, US exports increased 2.7% in 2013, and will accelerate to 5.5% in 2014 and 6.2% in
2015. The US current account deficit, which was 2.3% of GDP in 2013, is forecast to decrease to 1.7% of GDP in 2014. The
improvement of the current account is largely the result of the energy revolution in the US, as large-scale exploitation of
shale oil and gas greatly reduces the need for energy imports.
Source: Bureau of Economic Analysis; IHS Global Insight
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Business investment
10
8
6
4
2
0
7.3
5.5
2.8
5.7
2011 2012 2013 2014* 2015*
7.6
(Annual percentage change)
Growth in trade volumes: real imports and exports
Stronger export growth in 2014 and 2015
According to IHS Global Insight, US exports increased 2.7% in 2013, and will accelerate to 5.5%
2014 and 6.2% in 2015. The US current account deficit, which was 2.3% of GDP in 2013, is fore
to decrease to 1.7% of GDP in 2014.
Despite short-term solutions, the public deficit reduction remains an issue
As a result of the 2008 financial crisis, both government debt and the budget deficit increased sha
in 2009-2011 (see chart below).

As a result of the 2008 financial crisis, both government debt and the budget deficit increased sharply in 2009-2011
(see chart below).
Despite the recent passing of the 2014 federal budget, the political struggle over government finances remains a potential
risk to the US economic outlook in the mid and long term. The bickering between Republicans and Democrats in the US
Congress last year over government policy and the fiscal budget, and their unwillingness to make concessions on debt
negotiations, has proved a stumbling block to comprehensive budget consolidation, with an adverse effect on consumer
and business confidence and economic growth.
The clash between Republicans and Democrats led to a temporary shutdown of the government in autumn 2013. As the
fiscal year ended on 30 September, with no agreement on the fiscal budget for the following year, about 800,000 non-
essential government personnel were sent home and government agencies were closed – for the first time since 1996.
The shutdown ended on 17 October when a new budget was agreed in the face of the much more severe breach of the
government debt-ceiling. At that time, the US government had reached the maximum amount that it could borrow and,
unless the ceiling could be raised, the government would have been forced to live within its means. However, since the
government was then running a budget deficit of around 3.5% of GDP, it would have been unable to pay all its bills - or
worse, unable to fulfil its debt obligations. The former would have led to a deep recession, while the latter would constitute
an official government default.
In December 2013 Congress passed the new fiscal budget for 2014, but has not yet reached a long-term solution as the
agreement swaps some near-term spending cuts for spending cuts later and did not include a final settlement of the
government debt ceiling issue. However, in February this year, Congress approved another increase of the country‘s debt
ceiling until March 2015.
Less expansionary monetary policy, but interest rates remain low
Given the resilience of the US economy, in December last year the US Federal Reserve (Fed) decided to reduce its
expansionary monetary policy with effect from January 2014. Up until then, the Fed had bought assets worth US$ 85
billion every month to support the economy. In January 2014 this amount was lowered by US$ 10 billion and then in
February it was lowered again by another US$ 10 billion bringing the monthly purchase of bonds to US$ 65 billion.
Another US$ 10 billion reduction was announced in March, which will take effect in April 2014 bringing the monthly
bond purchase down to US$ 55 billion.
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(Government debt and budget balance in percent of GDP)
Public debt and budget balance: United States
As a result of the 2008 financial crisis, both government debt and the budget deficit increased sh
in 2009-2011 (see chart below).
Despite the recent passing of the 2014 federal budget, the political struggle over government fin
remains a potential risk to the US economic outlook in the mid and long term. The bickering be
Republicans and Democrats in the US Congress last year over government policy and the fiscal
budget, and their unwillingness to make concessions on debt negotiations, has proved a stumbli
block to comprehensive budget consolidation, with an adverse effect on consumer and business
confidence and economic growth.

While these are the first steps towards a conclusion of the asset purchase programme, the very low benchmark interest rate
of 0.25% will remain unchanged for a while, despite the recent improvement in the unemployment rate. In March 2013 the
Fed stated that it will drop its previous threshold for a benchmark interest increase – an unemployment level of 6.5% - and
instead take into account a mix of factors, such as labour market conditions, inflation expectations and financial markets
development, before making any decision on increasing interest rates.
The insolvency environment
US corporate insolvencies expected to decrease – but will still be above pre-crisis levels
After year-on-year increases of more than 40% in 2007 and 2009, the number of corporate insolvencies has decreased
each year since. According to the latest figures provided by the US Courts, the number of business bankruptcies filed in
federal courts fell 17.1% year-on-year in 2013: to 33,212 cases. We expect this positive downward trend to continue into
2014, although less steeply (by 5%), while the number of insolvencies should remain above pre-credit crisis levels (forecast
to be around 31,550 cases in 2014 compared to 28,300 in 2007).
Source: Administrative Office of the U.S. Courts; IHS Global Insight
Source: Administrative Office of the U.S. Courts; Atradius Economic Research
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(1-year trailing sum of insolvency counts based on quarterly data)
Insolvency trends: United States
Source: Administrative Office of the U.S. Courts; IHS Global Insight
US business insolvencies
(year-on-year change)
Source: Administrative Office of the U.S. Courts; Atradius Economic Research
% change
0 0
40,000 40,000
20,000 20,000
60,000 60,000
80,000 80,000
2010
-7.5%
56,282
2011
-15.1%
47,806
2012
-16.2%
40,075
2007
43.8%
28,322
2008
50.2%
42,546
2009
43.0%
60,837
2013
-17.1%
33,212
2014*
-5.0%
31,550
*forecast
(year-on-year change)
US business insolvencies

Default risk for US listed firms back to pre-credit crisis levels
The monthly median expected default frequency (EDF) figure for US listed companies decreased from 0.4% in January
2013 to 0.26% in January 2014, reaching levels recorded before the start of the 2008 credit crisis. This improvement is
due mainly to the continued rebound of the US economy, a rise in equity prices and a simultaneous reduction in market
volatility.
Source: KMV Credit Monitor and Atradius Economic Research
*The Expected Default Frequency (EDF) chart above is based on listed companies in the markets referred to, and the likelihood of default across all sectors within the
next year. In this context, default is defined as a failure to make a scheduled payment, or the initiation of bankruptcy proceedings. Probability of default is calculated
from three factors: market value of a company’s assets, its volatility and its current capital structure. As a guide, the probability of one firm in a hundred defaulting on
payment is shown as 1%.
US industries performance forecast
April 2014
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Median EDF evolution by country*
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Percent
Median EDF evolution by country*
Germany
Italy
United Kingdom
United States
France
Agriculture
Consumer
Durables
Metals
Automotive/
Transport
Electronics/ICT
Paper
Chemicals/
Pharma
Financial Services
Services
Construction
Food
Steel
Construction
Materials
Machines/
Engineering
Textiles
Excellent
Good
Fair
Poor
Bleak

Developments in some main sectors
Automotive
In the US, car sales have increased steadily over the last couple of years and 2014 is predicted to be another strong
year. The big three original equipment manufacturers (OEMs) - Ford, GM and Chrysler - all produced significantly better
financial results in 2013, and this has filtered through the supply chain. While this sector is cyclical and depends on the
broader economy, the performance outlook for the next 12 months is fairly optimistic.
Financial conditions are reasonably good. As well as growth in sales and production, capital markets have more appetite for
automotive producers’ and suppliers’ risk. While the sector’s dependence on bank finance is generally high, overall business
indebtedness is manageable and banks are therefore willing to provide credit.
On average, payments in the US automotive industry take between 60 and 90 days. Agreed payment terms have been
extended, especially for larger automotive retail stores: in many cases to as much as 360 days. Over the past two years we
have seen a positive and stable payment trend in the automotive sector, and expect this to continue in the coming months.
The number of insolvencies has decreased and will continue to do so, in line with the overall pattern of US business.
The US automotive sector is highly competitive in every subsector, but entry barriers are quite high. While our under-
writing stance is increasingly relaxed, we need to be mindful of concentration risk as the sector is highly dependent on the
future performance of the economy, both in the US and globally.
Construction
Over recent years we have had to be fairly selective in our cover on the construction industry as it was among the hardest
hit during the recession - and the slowest to recover. However, the rebound that began in 2012 continued throughout 2013
and there is now scope to consider more cover for the sector.
Payments in the US construction industry take 30-60 days on average, while 90 day terms are not uncommon. We are still
seeing a mixture of prompt and slow payment trends, depending on the specific industry subsector. Private construction
companies and general contractors typically experience most of the slow payments, as do companies that sell and lease
construction machinery and equipment. But overall, the number of notifications of late payment that we receive has
decreased over the last year. We expect incidents of late payment to fall further in 2014 as the market gradually recovers.
The same goes for US construction insolvencies, which improved last year. However, many companies have not recovered
from the prolonged downturn and so, despite the improvement, we still expect to see a noticeable number of insolvencies
in the construction industry this year. Since 2009 construction has had a higher rate of defaults and insolvencies than other
US industries. Private residential contractors, public and private commercial contractors, and hardware stores have seen
slightly more insolvencies, worsening the industry average. Nevertheless, we expect the number of construction
insolvencies to decrease this year.
Construction activity should increase in 2014. The housing market, recovering from record lows, initially paved the way
for construction growth. Now many non-residential building markets are turning the corner too: making for optimistic
2014 forecasts. In non-residential/commercial construction there is more activity in bridges, hotels, retail outlets, and
warehouses. In the case of large construction deals, there is a high dependency on bank financing and, while in recent
years it has been difficult to secure bank credit - especially for large construction deals - we are seeing this barrier easing.
However, federal government budget cuts and other restraints have hurt commercial contractors and projects. Concerns
over the Affordable Health Care Act have slowed construction activity in the healthcare sector significantly.
Atradius 11

Food
On average, payments in the US food industry take 30 days. While payment delays and insolvencies increased in the
second half of 2013, we expect this trend to stabilise this year. For the food sector overall, our underwriting policy is
relaxed, although we take extra care with subsectors that may feel the impact of commodity prices on their production
costs, as this will determine the price paid by consumers and consequently the level of demand. We also take account of
one-off events such as a spike in feed prices for meat producers and the Gulf oil spill in 2010: which had a significant
impact on seafood producers in that region.
Atradius 12

Atradius Credit Insurance N.V
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1006 JD Amsterdam
David Ricardostraat 1
1066 JS Amsterdam
www.atradius.com
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Disclaimer
This report is provided for information purposes only and is not intended as a recommendation as to particular transactions, investments or strate-
gies in any way to any reader. Readers must make their own independent decisions, commercial or otherwise, regarding the information provided.
While we have made every attempt to ensure that the information contained in this report has been obtained from reliable sources, Atradius is not
responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this report is provided ’as
is’, with no guarantee of completeness, accuracy, timeliness or of the results obtained from its use, and without warranty of any kind, express or
implied. In no event will Atradius, its related partnerships or corporations, or the partners, agents or employees thereof, be liable to you or anyone
else for any decision made or action taken in reliance on the information in this report or for any consequential, special or similar damages, even if
advised of the possibility of such damages.
Copyright Atradius Credit Insurance N.V. 2014
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