NACM December CMI – No Fireworks Yet!

The reports on the economy have been mildly encouraging at year’s end and now everyone’s attention is turned
to 2010—the year that is supposed to provide the anticipated recovery. The December CMI matched the mood
of the economy as a whole—essentially flat, but showing some mild progress. The most important aspect of the
report is that the index remained above the 50 mark that separates growth from contraction and even showed a
slight gain as it moved from 52.3 to 52.9. “This is hardly the kind of advance that provokes celebration, but given the gloomy assessments made about the 2009 holiday season, the gain is certainly preferable to what had been anticipated,” said Chris Kuehl, NACM economist.

The indicators that showed the least movement included sales and new credit applications. “This is to be
expected and is consistent with December readings in past years,” said Kuehl. “This is the period in which most
manufacturers are in semi‐hibernation unless the retail community is frantically trying to bolster inventory. That was not the strategy employed by retail this year; stores held the line on inventory and shoppers eventually
caved and bought what was available.” The retail numbers thus far showed a gain of around 4.5% over last year,
but these are still preliminary. What did show up as more positive was an increase in dollar collections and an
expansion of credit extended. Both of these data points bode well for the coming year, and the fact that there is
still evidence of companies seeking to catch up on their debt is making it a bit easier to advance credit. As has
been stated many times and from a variety of sources, the key to the economy’s healthy recovery is the rebound
in the credit markets. Thus far that recovery has been slow, but there continues to be a willingness to extend
new credit and there is some sense that more will become available in the coming year.

Other elements showing promise include the modest improvement in unfavorable factors—disputes,
rejection of credit applications and the like are still showing declines. But one unfavorable factor—filings for
bankruptcies—has deteriorated significantly. “There have been more bankruptcies and that poses some longterm problems. The growth of bankruptcy activity is not unexpected at this point in a recession, but until
these are worked through, there will be hesitation in the market to extend credit to any but the most healthy
companies,” Kuehl said. “As the economy rebounds, the companies that have been struggling to survive will
start to encounter more aggressive competition, which is often the straw that breaks the back of these
weakened companies.”

The overall conclusion from this month’s data is that the economy remains weak, but headed in the right
direction. The slow thaw in the credit markets is still taking place and there are signs of expansion in both the
manufacturing and service sectors. There has been no sign of explosive growth thus far, but that is consistent
with most of the other assessments on the economy. The improvement in 2010 looks more feasible, but there
are still no fireworks in the immediate future.

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