NACM Credit Managers Index May 2009

Lately, there has been a great deal of discussion about whether or not there is reason for some optimism
regarding the U.S. economy’s recovery. The phrases are showing up everywhere: “green shoots” and “light at the end of the tunnel” and even references to a “phoenix rising from the ashes.” “Those who have been watching the Credit Managers’ Index have been able to refer to these improvements for three months already, and the May data carries the same theme,” said Chris Kuehl, Ph.D., NACM economist.

Over the past several years, the CMI has provided a judicious overview of economic indicators as the credit management function is at the core of every company’s financial well‐being. CMI data began to show some upward movement in February and now has carried forward those gains for four straight months. There have been additional recent indicators of recovery: consumer confidence is up, durable goods orders are up, first time claims for unemployment are down and even the much beleaguered housing market is showing some movement. The CMI presaged these more optimistic statistics.

The latest CMI combined index rose from 44.3 to 45.4, which equals levels not seen since October 2008 when the overall economy began its major slide. The index is certainly moving in the right direction and is now only a few points away from breaking above the 50‐point threshold that would indicate expansion as opposed to contraction. Kuehl said, “The recession essentially came to an end in February and March of 2009. The CMI data, combined with various other measures, suggest that the economy finally reached its lowest point and has been in the recovery stage since.” Kuehl pointed out that this doesn’t mean the economy will come roaring back in the next few months, but asserted that the second quarter will be the last quarter of negative GDP as the third quarter should show some growth.

The specifics within the survey are even more interesting as they reveal some important driving factors in economic recovery. For example, sales jumped from 37.4 to 41.8, representing one of the biggest increases in the last several months. There has also been substantial movement in the new credit sphere and that is a sign that businesses have started to lean toward expansion again. One of the underlying factors the CMI captures is the access to capital. Without the presence of additional open capital markets, there is no opportunity to expand credit; the CMI is now showing that some of that credit is being extended again. Additionally, a couple of negative factors declined, reflecting some stability in terms of delinquencies and disputes and some reduction in dollars outstanding.

There is still a great deal of regional and sector variation, which mirrors the performance of the U.S. economy as a whole. The states that have seen the highest rates of job loss and bankruptcy—California, Florida, Michigan and Ohio—are seeing the weakest performance in terms of credit. However, some states seeing severe declines—most notably Arizona and Nevada—have shown some improvement. Kuehl noted that he has been speaking before a variety of NACM industry groups during the last few months and has observed some very different moods. The sectors that have been struggling are those one would suspect: automotive and retail. The growth sectors in medical and energy are reacting differently and may even be in true recovery by this time. The overall energy sector has been growing, especially in the area of alternative technologies. The entertainment sectors have also been holding steady.

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