NACM Credit Managers’ Index January 2010

The latest data are starting to turn in a decidedly positive direction; GDP numbers are the best in over a year and a half, suggesting that the recession is in clear retreat. After a mild recovery in the third quarter, numbers jumped 5.8% in the fourth. The bulk of this growth is attributed to manufacturers starting to replenish inventories, mostly since the beginning of December. This shift in strategy is reflected in the Credit Managers’ Index (CMI) numbers as well. “The jump in manufacturing was stark and unexpected and, since the decline registered in the last iteration of the index, there has been a major leap in some critical areas,” said Chris Kuehl, Ph.D., NACM economist. “The combined CMI saw a jump from 52.9 to 55.1, which is
impressive enough, but the real movement came from the manufacturing side,” he said. Reinforcing the message coming from the economy as a whole, the manufacturing sector jumped from 52.1 to 55.1, reversing the trend from the December index when the sector stagnated and slipped in terms of positive factors.
There was an improved atmosphere in both manufacturing and service sectors with the most activity in the combined index’s favorable factors, specifically sales and new credit applications. Sales in the combined index jumped from 56.7 to 60.7, marking the first time this figure has been above 60 in 18 months. There was also progress in new credit applications—a jump from 54.2 to 57—signaling movement in the credit sector despite ongoing issues in the financial community. One of the biggest leaps came from dollar collections, which sported readings in the 40s just nine months ago and is now at 61.3. The same pattern was seen in
amount of credit extended, now standing at 58.8 after sitting in the 40s just five months ago.
“The past pattern in the index suggests that this is developing into a classic recession exit,” said Kuehl. “The deterioration of inventory and the dramatic reduction in capacity utilization meant that any spark of demand would propel business out of this predicament and, as in past recessions, the months following the end of these strategies would show substantial growth. The trillion‐dollar question is whether this growth surge can be maintained throughout the rest of the year.”
Thus far, these are the highest numbers seen in the index since February 2009 when the initial impetus of the recession was broken. Since then, growth has been even, but not dramatic. That trend of slow growth is likely to return, but the suggestion from this month’s data is that there will be pretty substantial gains for the bulk of the first quarter.
The service sector was not as dramatic as the manufacturing sector, but there was growth. The same factors seemed to be at work—increased sales and expanded availability of money. In both sectors there has been some improvement in terms of the number of accounts placed for collection and the number of disputes, and there has been a fairly steady decline in the number of bankruptcies as well. All in all, the CMI numbers of the last few months signal that business is attempting to catch up and position itself for the growth that has now finally arrived.

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