Is the recession truly over? Most of the evidence says “yes,” although there will be problems to contend with for the next few months. In many ways, the best way to characterize the situation is to say that the beatings on the economy have stopped, but that every bone has been broken. The recovery started slowly in the last few months and will continue to progress slowly and not without some reversals from time to time, but news from the last few days of October was especially solid with the third quarter GDP numbers stronger than anticipated—3.5% growth after four quarters in the negative category. Even more significant from the perspective of credit availability is that the Credit Managers’ Index (CMI) broke past the 50 neutral barrier for the first time in over a year. The index started in that direction in September when the service side of the equation improved to 50.1, but manufacturing still lagged, finishing at 49.6. Now both sectors are showing expansion and the CMI as a whole is pointing toward growth.
The significance of these findings is hard to overestimate given the kind of analysis taking place around the improved GDP numbers. The dominant theme is that four factors were at work with third quarter GDP: the impact of the stimulus package, the “Cash for Clunkers” program, the $8,000 new home-buyer credit and the Fed keeping interest rates low. These are all important factors, but are not the only ones at work—the CMI data makes this pretty clear. The private sector is also engaging in this economic comeback with the CMI tracking this activity in both the service and manufacturing sectors.
This month, progress was made in both the positive and negative indicators in contrast to the numbers in September where the majority of the progress was in the negative indicators. NACM’s Economic Analyst Dr. Chris Kuehl said that there were two streams of good news, “Not only has there been some expansion in terms of credit availability, but there continues to be evidence that companies are catching up on their debt. Over the last few weeks, I have spoken at several NACM events and have heard similar stories at each. Companies that had been behind in their obligations are catching up in anticipation of further growth and the need to ask for more credit in the future. By the same token, comments by attendees suggest that there is more money starting to filter into the system, making credit more accessible than it has been in some time.”
The CMI data show a significant improvement in dollar collections and that the amount of credit extended is higher than it has been in well over a year. There were also far fewer accounts placed for collection and fewer applications rejected. This latter point is important to note as one would expect more rejections in a much more restrictive credit environment. This means that many of the applicants are more creditworthy than they have been in past months.
To view the full CMI report for October, click this link CMI_nov09