NACM’s Credit Managers’ Index Economic Report for October 2010

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The Credit Managers’ Index (CMI) improved dramatically in October and for the best reasons. This month saw solid activity in favorable factors for both the manufacturing and service sectors. Sales returned to levels not seen since May and is now above 60 again.

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Banks are getting a little more aggressive, but more importantly there is more credit being extended by companies seeking to capture more share from their consumers.

The Credit Managers’ Index (CMI) improved dramatically in October and for the best reasons. This month saw solid activity in favorable factors for both the manufacturing and service sectors. Sales returned to levels not seen since May and is now above 60 again. Sales had been dropping steadily all summer and had been as low as 57.2, a reading not seen since December 2009. The boost in this factor occurred in both sectors. At the same time, there was a small jump in the number of credit applications, reaching a level not seen since June. Additionally, the increase in credit applications was coupled with fewer rejected ones, which is a solid sign for the future. “The overall feeling is that credit is starting to loosen up again after the decline in the summer. Banks are getting a little more aggressive, but more importantly there is more credit being extended by companies seeking to capture more share from their consumers,” said Chris Kuehl, PhD, economic advisor for the National Association of Credit Management (NACM). The amount of credit extended is back to levels previously set in May and dollar collections, which had already started to improve in September to 60, is now up to 61.9. “It is good news when either of the sectors starts to move in a positive direction, but activity in the favorable category generally signals a bigger set of gains in the overall economy,” said Kuehl.

Improvement in unfavorable factors continued as well. These are the indicators that signal companies are struggling with debt. When they improve, there is a return to confidence in the business community as a whole. As disputes, bankruptcies and dollar exposure decline, there is evidence that companies are trying to catch up on debt, which is both a signal that business prospects have improved and that there is activity planned. An established pattern for these factors indicate that companies are seeking to get current with existing credit lines so they are in a position to ask for more in order to expand. This seems to be happening again, albeit at a subdued rate.

In the overall economy, there is evidence some progress is being made, but the pace has been excruciatingly slow. The latest data on jobs show that layoffs have slowed, but there is still not much evidence that hiring is underway. Durable goods orders were up, but only because there was another surge in orders for aircraft. The latest results from the Purchasing Managers Index show only modest gains; this pattern is the same in almost every current survey or study. “The good news is that there is progress, but the bad news is that it is far too slow to make a big impact on the issue that is of greatest concern in the public’s mind: jobless totals. It will take a growth rate above 5% to erode the unemployment numbers, but the Commerce Department’s recent numbers show that the economy grew at only 2% in the third quarter. The CMI numbers reinforce the notion that there has been growth, but it remains slower than preferred,” said Kuehl.

The overall indicator that sets the tone for the entire October survey is the top number, and this month the index reached 54.9 after falling to as low as 53 in July. The numbers are not yet signaling that happy days are here again, but the trend is headed in the right direction and there is some renewed hope for a reasonably strong finish to the year.

The full report, complete with tables and graphs, along with CMI archives may be viewed at http://web.nacm.org/cmi/cmi.asp.

About the National Association of Credit Management
The National Association of Credit Management (NACM), headquartered in Columbia, Maryland, supports approximately 17,000 business credit and financial professionals worldwide with premier industry services, tools and information. NACM and its network of Affiliated Associations are the leading resource for credit and financial management information and education, delivering products and services, which improve the management of business credit and accounts receivable. NACM’s collective voice has influenced legislative results concerning commercial business and trade credit to our nation’s policy makers for more than 100 years.

Source: National Association of Credit Management

Contact: Caroline Zimmerman, 410-740-5560, caroline(at)nacm(dot)org

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