For the third consecutive month, the Credit Manager's Index is signaling that the recession is over and the economy is expanding, according to a report by the National Association of Credit Management (NACM).
The index, which measures economic factors affecting credit and collection professionals, increased to 52.9 in December. In October, the index - at 51 - pushed above the 50 mark for the first time in more than a year. Any score above 50 indicates economic expansion.
"This is hardly the kind of advance that provokes celebration, but given the gloomy assessments made about the 2009 holiday season, the gain is certainly preferable to what had been anticipated,” says Chris Kuehl, economist at NACM, based in Columbia, Md. The economy remains weak, the organization says, but is heading in the right direction.
The index consists of four favorable factors, such as sales and the amount of credit extended, and six unfavorable factors, such as accounts placed for collection and bankruptcy filings. Preliminary retail numbers showed a gain of around 4.5% over last year, while increases were seen in collection dollars and credit extended, factors that boosted the index.
For December, the indicators that showed the least movement included sales and new credit applications.
"This is to be expected and is consistent with December readings in past years," says Kuehl. "This is the period in which most manufacturers are in semi-hibernation unless the retail community is frantically trying to bolster inventory. That was not the strategy employed by retail this year; stores held the line on inventory and shoppers eventually caved and bought what was available."
But the improvements in collections and credit bode well for the coming year, according to NACM.
Slight declines were seen in disputes and rejected credit applications, while bankruptcy filings deteriorated significantly. Kuehl says there have been more bankruptcies, which poses some potential long-term problems, but that growth in bankruptcy activity is not unexpected at this stage of a recession.
A thaw in the credit markets is still taking place and there are signs of expansion in both the manufacturing and service sectors. There has been no sign of explosive growth thus far, but that is consistent with most of the other assessments on the economy.
The manufacturing sector slipped into contraction territory for the first time since January 2009. Sales declined a little from November, but there were sharp increases in the amount of dollar collection and the level of additional credit extended.
The reduction in sales activity is to be expected in what is the slowest period of the year for the manufacturing community, but the data were seen as good news as more manufacturers are catching up on debt and preparing for what may lie ahead. As was noted in the last two months of the index, there is a familiar process underway and the fact that this process has continued to advance is good news, according to NACM.
