For the sixth straight month, the Credit Managers’ Index indicates that there is growth in the availability of capital. The recovery in the index started in February of this year, supporting the notion that the economy was starting to show some rebound and “green shoots.” The July index also moved much closer to the magic number of 50, signaling expansion is taking place. The reading is now at 48.
Over the last two months, the dominant economic debate has focused on whether the recession has already ended, is ending now or is in the process of ending. The data coming from the housing sector is generally very positive with sales of both existing and new homes up. There are improvements in some of the manufacturing indicators, and some data suggests overseas sales have been improving. At the same time, there are concerns about the continued high rate of unemployment and the lingering impact of the downturn.
At the core of this debate is consumer confidence. Data from the Conference Board and the University of Michigan show some erosion of confidence lately, but at the core of that measure is whether consumers and businesses are seeing improved access to capital. The latest Credit Managers’ Index suggests that credit markets are continuing to edge toward expansion. If the trend of the last several months continues, the index may soon break above 50. The current score for the combined index is 48, up from June’s number of 46.4. Once the index crests 50, it will signal that expansion is taking place.
“This marks the sixth straight month of improvement in the index, and it now looks likely that expansion will be under way by the end of the third quarter,” said Dr. Chris Kuehl, NACM’s economic analyst. The specific improvements in performance are even more encouraging. Sales and the amount of credit extended both jumped dramatically. Sales were up from 44.8 in June to 48.6 in July, while the credit extended measure went from 46.1 to 48.2. The index of favorable factors as a whole reached the critical 50 point and two of the
measures moved into expansion territory as new credit applications moved to 52.6 and dollar collections went to 50.8. The unfavorable indicators also moved in the right direction as there were fewer disputes, fewer bankruptcies, fewer credit rejections and fewer dollars beyond terms. “The sense is that the weakest companies fell by the wayside as the economy toughened and now all that is left are the survivors,” said Kuehl. “The good news is that in a recession, this process allows the solid companies to pick up market share and recover much faster. There is some anecdotal evidence that this process istaking place. As some businesses vanish, their slice of the business is being absorbed by other competitors.”