October Credit Managers' Index Breaks Into Expansion Territory

Association says that with growth nearing manufacturers are gearing up by catching up

The Credit Managers' Index (CMI) has broken past the 50 neutral barrier for the first time in over a year, according to the The National Association of Credit Management. The index started in that direction in September when the service side of the equation improved to 50.1, but manufacturing still lagged, finishing at 49.6. Now both sectors are showing expansion and the CMI as a whole is pointing toward growth.

The manufacturing sector finally crested the 50 mark this month. "After falling just short of the growth mark in September at 49.6, manufacturing numbers are now past the neutral zone and are standing at 51.2," said NACM's Economic Analyst Dr. Chris Kueh. "This is a pretty sharp gain given the slow development over the last several months. While it took from July to September to move 1.3 points, it only took one month for the sector to move 1.6 points to reach Octobers numbers. This is rapid expansion by any measure."

The associaton offers an explanation for the good numbers. "In past years, when it appeared that creditors were starting to see their clients catch up, there was a delay of about a month or two before the manufacturers started to see more business. This pattern is nearly always the same. The companies that are in financial distress to some degree or another slow down payments and try to stretch dollars, even to the point of irritating their suppliers. Now that growth is nearing, these same manufacturers are gearing up by catching up. They are starting to bring in more raw materials, which is the predecessor to more production. That this is happening at a national level is represented by the rise in GDP numbers and the improvement in other indexes such as the Purchasing Managers Index (PMI) issued by the Institute of Supply Management. Right now the CMI and PMI are mirroring each other and that is generally a good sign for the manufacturing sector. There remains a considerable way to go before the entire sector is nearly healthy, but the trends are moving in the right direction. From this point on, the critical factor will be consumer demand and the improvements that show up in trade."

The CMI data show a significant improvement in dollar collections and that the amount of credit extended is higher than it has been in well over a year. There were also far fewer accounts placed for collection and fewer applications rejected. This latter point is important to note as one would expect more rejections in a much more restrictive credit environment. This means that many of the applicants are more creditworthy than they have been in past months.

Copyright Agence France-Presse, 2009

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