US Banker | November, 2009
The Cash-for-Clunkers program may have partly juiced the 3.5 percent jump in U.S. gross domestic product, but two closely watched reports suggest that the economic recovery has actually begun. The National Association of Credit Management’s Credit Managers Index for the manufacturing sector rose 51.2 in October from 49.6 in September, moving firmly above the 50-point level indicating positive economic growth. The Institute for Supply Management also came out with some good news: its October 2009 Manufacturing ISM Report on Business registered another gain, rising 3.1 percent to 55.7 percent, putting it north of the 50 percent slowdown/expansion fault line, with 13 of 18 industries reporting growth.
NACM says its data indicates a strong increase in the amount of credit extended to manufacturers and an uptick in dollar collections. “This is a pretty sharp gain given the slow development over the last several months,” according to NACM economic analyst Chris Kuehl. “There continues to be evidence that companies are catching up on their debt.” The service sector CMI gained in October too, though not at such a heated pace, climbing to 50.9 from 50.1 (50 is considered the midpoint between expansion and contraction). Retailers are concerned about the strength of holiday sales, while the health industry is focusing on the course of healthcare reform on Capitol Hill.
The ISM report also suggests that manufacturers are firmly on the track to recovery. Trends are positive in new orders, production, exports, imports, order backlogs, and even employment. The rate of decline in manufacturer and customer inventories slowed somewhat in October, too, but remains troublesome—the customer inventories index stood at 38.5 percent, remaining below 50 percent for the seventh straight month. “The index indicates that respondents believe their customers; inventories are too low at his time,” according to the report.
Another key measure of credit of availability—the Equipment Leasing and Finance Association’s Monthly Leasing and Finance Index (the MLFI-25)—shows that the credit markets are still far from fully repaired. New business volume totaled $4.7 billion in September, up 27 percent from August but off 30.9 percent from September 2008. Charge-offs rose 60 percent year-over-year to 3.0 percent.
“Credit availability has stabilized,” says Ralph Petta, ELFA’s interim president. “But historically it’s not a pretty picture.” Credit portfolio quality has declined, although originations have improved. “It will take a while for portfolios to cleanse themselves and for transactions to run off books. It will take time to rebuild the market’s comfort level,” he adds.
Petta doesn’t expect the prepackaged bankruptcy of CIT to dent credit appreciably. “CIT does a lot of equipment financing,” he says. “It remains to be seen what will happen as they restructure, but there other companies willing to finance equipment and fill the void.”
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