Citing trends in the quantity and dollar value of past due payments to U.S. businesses, trade credit insurance provider Euler Hermes is predicting that GDP growth will slow to about 3% in this year’s fourth quarter.

So far this year, Euler Hermes said in a new report, there has been no improvement in the number of past due payments and the average dollar amount has increased about 2%. As a result, the firm is projecting a decline in fourth-quarter growth from the healthy 3.5% in the third quarter.

“While the dollar amount of past due payments has improved by 60% since 2008, the current figures suggest that we can expect to see slower GDP growth for the balance of the year,” Dan North, lead economist for Euler Hermes North America, said in a news release.

“We have found a strong correlation between payment behavior and GDP, including an increase in past due payments in 2007 as the recession approached and a decrease before the recovery began in 2009,” he explained. (See chart at bottom of story.)

According to the report, payment behavior can be “a harbinger of economic performance” because it reflects the financial stress of buyers. Even before the recovery started, the report says, Euler Hermes’ clients “noted improved payment behavior” in the first quarter of 2009 as buyer stress waned, “making it easier to pay on time, a clear indication of the positive growth to come.”

In what could be another sign of slowing growth during the rest of 2014, the report shows that customers are taking longer on average to pay businesses.

As far as individual industries, the payment data predict a mixed outlook, according to Euler Hermes. While retail industry payment behavior strengthened 8% in the third quarter, suggesting increased retail activity in the fourth quarter, payment behavior in the metals industry deteriorated 8% in the third quarter.

“This suggests that the recent high performance of companies buying metals, such as equipment manufacturers, may cool in Q4,” Euler Hermes said.

Other industries that show more frequent past due payments include chemicals, commodities, electronics and food. The auto and energy industries experienced payment improvements.

Euler Hermes bases its data on monthly information collected from its clients detailing unpaid accounts receivable from their buyers.

Past Due Payment Amounts vs. GDP

PastDue-PmtAmounts-vs-GDP

Source: BEA, Euler Hermes

 

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