Credit Managers' Index Holds onto September Gains

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NACM’s CMI Economic Report for October 2011

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The fact is that companies are asking for more credit than they may receive, but there is still evidence of credit movement.

The bad news is the October Credit Managers’ Index (CMI) did not see September’s big gains. The good news is that there was no retreat from September’s numbers. The overall index hit 53.8 in September after tumbling to 52.7 in the previous month, but in October the index essentially held steady at 53.7. There was a slight reduction in the index of favorable factors, but the index of unfavorable factors came just a little bit closer to expansion territory. The majority of economic indicators has been reasonably positive over the past few weeks and seems to be pointing to better months to come and the CMI index did not dispel this assumption, although the slower pace of progress reminds those paying attention that this is unlikely to be a rapid recovery for any but a handful of sectors.

“Most of the decline took place in the favorable factors suggesting that growth is not yet ready to surge, but the fact remains that adjustments were relatively minor and remain above the trend from earlier this summer,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). The rate of sales slowed from the pace in September, but at 60.4 it is still higher than it has been since April. Expectations were that sales would be back to the levels set last spring, but there was evidence in the other index numbers for a slight reversal of credit availability. The number of new credit applications improved slightly to 58.9, taking this indicator back to April levels. It is apparent that more businesses are seeking to expand and are making more credit requests. The hitch is that there was a decline in the amount of credit extended. However, the decline was not dramatic, falling from 62.8 to 61.9. That leaves current readings higher than through most of the summer, but the slowdown is a bit of a concern as the holiday season begins. “It has been noted in other surveys that manufacturers are planning to spend more on capital goods than they did last year, and one of the limiting factors in that decision will be the availability of credit,” said Kuehl. “Some will have an easier time clearing their financial obligations than others, although the unfavorable factor index showed solid improvement, suggesting that more companies are getting back to some measure of financial health.”

Most of the positive news stemmed from the changes in unfavorable factors. These upward shifts suggest that companies are having more success getting finances in order than was the case earlier in the year. The gains in the index are starting to point to a general recovery. The pattern for the last couple of years has been separation. The weak and problematic companies for the credit manager have been fading away as bankruptcy claims them. The anecdotes from the field are nearly universal across most categories. The customers struggling to pay their bills have been slowly exiting, and those left behind are those that have seen some growth. There was a reduction in the number of credit applications rejected and that somewhat contradicts the reduction in credit issued. “The fact is that companies are asking for more credit than they may receive, but there is still evidence of credit movement,” said Kuehl.

Overall, unfavorable factors showed improvement. There were fewer accounts placed for collection, fewer disputes and fewer dollars beyond terms. There were also fewer bankruptcies. The unfavorable index is still just shy of the 50 point, sitting at 49.9 and suggesting expansion over contraction, but the trend is headed in the right direction. The last time the unfavorable index was above 50 was in July and the numbers had been sinking deeper into the 40s since. The current reading is about as close to 50 as one gets and is now expected to clear that level next month.

“The latest data on the expansion of the U.S. economy in the third quarter reinforces the notion that conditions have started to improve, and the retail data thus far has been more encouraging than not,” said Kuehl. “If one looks at the steady rebound in the financial stability of the business community over the last month, there is some reason to assume that conditions will improve even more in the last two months of the year.”

The online CMI report for October 2011 contains the full commentary, complete with tables and graphs. CMI archives may also be viewed online.

About the National Association of Credit Management

NACM, headquartered in Columbia, Maryland, supports more than 15,000 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, education, products and services designed to improve the management of business credit and accounts receivable. NACM’s collective voice has influenced federal legislative policy results concerning commercial business and trade credit to our nation’s policy makers for more than 100 years, and continues to play an active part in legislative issues pertaining to business credit and corporate bankruptcy. Its annual Credit Congress is the largest gathering of credit professionals in the world.

NACM has a wealth of member experts in the fields of business-to-business credit and law. Consider using NACM as a resource in the development of your next credit or finance story.

Source: National Association of Credit Management

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