NACM Credit Manager’s Index for August 2009

After six months of solid gains, the Credit Managers’ Index showed slower progress and registered declines in key indicators. There was still some positive movement in the Index as a whole, but there are obvious weaknesses showing up in terms of credit availability, credit applications and sales. There were also areas of concern in terms of dollar exposure, disputes and other negatives. There was a sense that bigger economic issues began to overtake the sector, slowing down some of the progress noted in the last few months. The Index
showed a dramatic decline from the levels in July, but overall the Index gained and moved a little closer to the magic number of 50, climbing from July’s combined index score of 48 to the August score of 48.1.

These numbers are a little sobering given the sense that the economy had started to come out of the recession in July’s report. This suggests that the proposed recovery is a little weaker than some of the indicators reflect, especially in terms of availability of money. The reduction in credit applications indicates that there is less willingness to lend and that companies seeking credit are being put through more hoops than in the past. The number of additional disputes and delinquencies also suggests that some sectors of the economy are still struggling.

NACM Economist Chris Kuehl, Ph.D. stated that these readings do not necessarily mean that the other signs of economic recovery are not accurate but, he indicated, “the credit system has not healed and it may be some time before there is a sense that the biggest issues are behind the economy. There are some shoes left to drop, most notably the commercial property sector.” It had been assumed that the August index would crest over 50—signaling expansion—which correlated to the Purchasing Managers’ Index (PMI) that had also risen to levels
very near the 50 level. “It is mildly encouraging to note that the index has not fallen, but an anemic .1 gain was much less than had been anticipated,” said Kuehl.

Other data that has been used to assert that the recession has started to bottom out is accurate and encouraging. Housing starts are returning back to growth and it is encouraging to see durable goods orders back to normal, but the money situation remains a solid concern for business as it seeks to expand into other sectors to capture some newly available market share.

The issues are the same as they have been for the last few months: consumer confidence and investor confidence. At the moment, the investment community is more encouraged than the consumer, and that creates a problem in the not‐too‐distant future. Until consumers start to draw on the rebuilding inventory levels, there is nothing to suggest that producers should start gearing up again. This is part of what seems to be making credit scarce—a concern that the current growth is somewhat artificial, motivated by inventory gains in anticipation of demand or programs like “Cash for Clunkers.”

“Overall there were more down sectors than positive ones this month,” said Kuehl. “There is a small amount of solace to be taken in the observation that none of these areas declined a lot, but growth was expected.” The biggest improvement was in number of bankruptcies, but that may be connected to the fact that most of those companies threatened with collapse have already been forced into that procedure.

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