The best that can be said about the current CMI number is that a declining pattern was thoroughly broken, and there is some reason to believe that this could be start of a much more positive trend than has been seen through most of the summer.
Columbia, MD (PRWEB) August 31, 2012
For the past several years, the Credit Managers Index (CMI) has consistently predicted the performance of the greater economy by roughly a month. In 2008, when the majority of the economic indicators pointed toward more growth, the CMI had already started to track downward and essentially predicted the impending recession. This indicative quality has been noted and is largely attributed to the nature of the credit manager’s world, which essentially focuses on the future. Credit managers are more concerned about what is happening in the next 30, 60, 90 or 120 days—when invoices are due. If this trend holds true, the news from this month is going to make many happy about coming trends in the economy.
At the top of the list of numbers to get excited about is the CMI reading itself. It now sits at 55.8, up from 53.4, and that ends four straight months of decline. It also takes the index back to levels seen in March when the CMI was at 56.2. The second number to get enthused over is the index of unfavorable factors. Last month that set of numbers slipped beneath 50, the line that separates expansion from contraction. Now at 53.1, it is as high as it has been in well over a year. The prior high was 52, which was also back in March. Finally there is the index of favorable factors, which recovered nicely as well. The current reading is back to 60 and is consistent with the numbers seen through most of the spring.
“There is more in the details to fuel a cautiously upbeat attitude,” said NACM Economist Chris Kuehl, PhD. “The number that moved the needle on the index of favorable factors was sales, and the almost four-point jump was impressive.” Sales returned to the 60s, sitting right at 60, after falling to 58.5 last month. It had been one of the more consistently positive index numbers for the past year, staying above 60 all year with the exception of a dip to 58.3 in November 2011. There was a slight weakening in new credit applications, but the other favorable factors, dollar collections and amount of credit extended, remained stable.
The most significant change took place in the unfavorable factors. Last month, only two of the six factors were above the expansion mark, and this month all of them are. The biggest improvements were in accounts placed for collection (48.9 to 52.4), disputes (47.6 to 51.9) and filings for bankruptcies (54.9 to 59.6). Filing for bankruptcies is as positive as this category has tracked in well over a year. Business closures have tapered off over the last several months and that is generally a good sign.
"It is far too early to declare a dramatic turnaround in the economy," said Kuehl, "but these better numbers are reinforcing some of the other emerging data points." He affirmed that the housing market is showing consistent signs of life, boosting the prospects for construction employment, and noted the solid numbers in durable goods orders cautioning that a significant part of that gain seemed to come from the aerospace industry. Finally, the rate of new claims for unemployment has slowed, but did not have much effect on the rate of unemployment itself.
"The best that can be said about the current CMI number is that a declining pattern was thoroughly broken, and there is some reason to believe that this could be start of a much more positive trend than has been seen through most of the summer," Kuehl said.
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Source: National Association of Credit Management