CMI Report

Expect to see continued gains from the February Credit Managers’ Index (CMI) when it’s released Wednesday morning. In addition to solid growth in the overall index, certain key categories received a boost and provided another dose of confidence to the still leery American economy.

“The mood of the country could best be described as cautious and perhaps a little encouraged as far as economic growth prospects are concerned,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). The question mark stems from the last month’s sudden spike in oil prices and its potential impact on the price of gasoline. Kuehl noted that in the past this kind of leap was enough to send the economy hurtling back into recession, but thus far the consumer seems to be taking it in stride.

How long the even temperament of consumers will last is anyone’s guess, but if the threat of high prices turns out to be a temporary one, expect both consumers and businesses to breathe heavy sighs of relief and return to focusing on the good news that has so far dominated the start of 2012. “There has been good news on the job front, better demand numbers, better growth numbers and better numbers in the CMI,” Kuehl added.

Sales numbers also grew in February, which signaled future improvements in the index’s unfavorable factors in the months to come. “An expansion in sales allows companies to catch up on their debt and improve their overall credit standing,” said Kuehl. “This bump in overall business activity is a precursor to additional expansion.”

The full CMI report for February 2012 with commentary, tables and graphs will be available Wednesday. CMI archives may also be viewed here.

Jacob Barron, CICP, NACM staff writer
 

The January Credit Manager’s Index (CMI), to be unveiled Tuesday afternoon, is expected to illustrate a small positive increase from the holiday-assisted December index. It’s much like the positive out of the gates found by the CMI in January 2011 – but, this time, some key statistics within seem to predict a better follow-up to the strong start than one year ago.

Chris Kuehl, PhD, National Association of Credit Management (NACM) economist, noted the parallels between this and last year, but also spelled out the potential “staying power” behind this year’s January finish that was absent by Spring 2011. New sales in January will see a bump in the not-yet-public CMI results. In fact, January’s sales numbers will show themselves to be the best in many months. That said, nothing is a guarantee going forward in this up-and-down economic recovery

 “The next few months will bear watching to see if this sales trend is repeated and sustained longer than it was in 2011,” said Kuehl. One area Kuehl seems to believe will be a harbinger of a better late winter/early spring in 2012 is a bump in new credit applications:

 “The jump from December [to January] was nothing short of spectacular,” Kuehl foreshadowed. “The trend toward more credit applications suggests a lot of new activity; it is equally encouraging that there was a gain in the number of credit applications accepted.”

(Note: The online CMI report for January 2012 contains the full commentary, complete with tables and graphs and will be available Tuesday. CMI archives may also be viewed online).

Brian Shappell, NACM staff writer

The question of whether or not the economy is on the right track seems to depend on where you look.

An array of statistics were released earlier this week, and taken together they seem to suggest a still hesitant economy that nonetheless seems to be tipping slightly toward growth. For example, car dealers sold more than 1 million vehicles in October, marking a 7.5% gain from the same month a year prior, according to Autodata Corp. This type of growth in the auto sector translates to an annual sales rate of 13.3 million vehicles, which is one of the highest readings in years.

Elsewhere in the economy, the news wasn’t as uniformly positive. The Institute of Supply Management (ISM) released its most recent purchasing managers’ index (PMI), and although it continues to signal continued economic growth in the manufacturing sector, it still fell, from 51.6 to 50.8. Like NACM’s most recent Credit Managers’ Index (CMI), this indicates a slower pace of progress that continues to foreshadow tepid growth.

The best news from ISM’s October report was that the New Orders Index increased 2.8%, to 52.4% total, reversing the downward trend that gripped this index for the last three months.

Meanwhile, the U.S. Census Bureau of the Department of Commerce announced that construction spending during September 2011 was estimated at a seasonally adjusted annual rate of $787.2 billion, a 0.2% increase from the revised August 2011 estimate of $786.0 billion. Private construction drove the increase, as spending on government projects fell by 0.6% in the same month.

As heartening as the minor increase was, construction spending remains 1.3% below the September 2010 estimate of $797.3 billion.

Jacob Barron, CICP, NACM staff writer

NACM's Credit Manager's Index for October, unveiled Monday, showed little in the way of building about gains reported in September's index...but, importantly, it also showed no signs of retreat.

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. Most economic indicators has been reasonably positive over the past few weeks and seem to be pointing to better months to come. The October CMI index does  nothing to dispel this notion, although the slower pace of progress continues to forshadow tepid growth, recovery for any but a handful of sectors.

“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 manufacturing sector continues to gain momentum, with the favorable factor indext surging to levels not seen since May. Service sector performance, meanwhile, was weaker than many had expected given the decent retail performance noted in the last few months. The most startling decline was in sales, though there still was palpable improvement in unfavorable service sector factors, going forward.

For the full write-up and charts for October's Credit Managers' Index, visit http://web.nacm.org/CMI/PDF/CMIcurrent.pdf.

Brian Shappell, NACM staff writer

In the latest Credit Manager’s Index (CMI), now available on the NACM website’s main page, there seem to be rays of hope not seen in months for the economy and the credit industry.

NACM Economist Chris Kuehl, PhD, noted the soon-to-be-released index finds improving September levels for the overall index (53.8), sales (61.4) and favorable factors level (59.9), the latter of which hits its best mark since April. This was all welcome news coming off an abysmal August CMI downturn.

“For the past few months, there was a slow deterioration of key credit conditions and many were expecting to see more declines this month. Instead, the combined index returned to the levels set in July,” Kuehl said. “The overall sense at this stage is that there is some life left in the economy. There is still not enough evidence to be convincing, but the most chronically optimistic could say that a recovery is at hand. The data, however, is sufficient enough to make the case that the precipitous plunge predicted for the end of the year may not be taking place after all. Not that there is no threat of sinking back into recession, but a deep plunge seems more and more distant.”

It appears a big part of the setback in August can be laid squarely at the feet of federal lawmakers and their partisan brinksmanship tactics.

“There is abundant evidence that business activity is ramping up again from the drops in August, and it is looking more and more like much of the summer slowdown was prompted by all the political infighting,” said Kuehl. “The fact that August showed such a pronounced dip suggests that there really is something to that concern.”

The full CMI report and statistical analysis can be found at the NACM website (www.nacm.org) in the #1 position on the main page's information/news scroll.

Brian Shappell, NACM staff writer

The Credit Managers’ Index (CMI) for August hasn’t been this low in more than a year—falling from July’s 53.9 to 52.7—and is now tracking at levels last seen in 2008–2009. “The news this month is not good and comes as no shock to anyone who has been tracking the data coming from all directions,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). If there is any good news, it is that the combined number has not yet fallen below 50, the threshold separating contraction from expansion. But the index of unfavorable factors fell to contractionary levels. The last time the unfavorable index was this low was in the 2009 period when the recession had just started to show signs of easing. The fact that the data was not worse this month than it was is probably worth noting as most of the other indices released in the last few weeks suggested there might have been an even steeper decline.

Kuehl said the best news in this month’s data is found in the favorable index. Here the data barely changed, going from 58.9 to 58.1. This is still much lower than most of the last year, but the precipitous collapse that took place in the companion part of the overall index did not take place here. There was even some improvement in the amount of dollar collections, while declines in the sales category were slight, from 60 to 59.2. “The most interesting aspect of the data is that extension of credit actually improved in the middle of all this gloom and doom. The fact that favorable factors have improved slightly or remained stable provides some hope that conditions will improve in the coming months,” said Kuehl. “There is still demand and business progress, but the crisis in the overall economy has been putting pressure on the finances of many companies.”

Upon examining the unfavorable factors, it is striking that the problem is primarily one of sudden business stress and failure. The biggest declines were in accounts placed for collection and dollar amounts beyond terms. These are signs of real distress among customers, but it is equally significant that filings for bankruptcies did not increase dramatically and there was not an acceleration in the rejection of credit applications. The divergence in these factors is particularly interesting and informative. While speculative, one could look at this data and conclude that companies got in trouble in the last month or so because of a sudden drop in business after anticipating better times. Evidence from earlier in the year showed that companies across the board were anticipating better days in the second half of the year and many were trying to prepare for this with expansion plans. This anticipated economic growth did not come to pass and these companies swiftly got into trouble.

If there is a small silver lining to all this, it is that the level of bankruptcies has not risen at the same pace. That means one of two things. If the economy gets back in gear in the next couple of months, companies struggling now will have some time to gain control of their budgets and be able to avoid sliding further toward collapse and ultimately bankruptcy. If the economy doesn’t catch fire to some extent in the near future, the bankruptcy rate will start to climb and the index will reflect it. The other mildly encouraging piece is that the rate of rejection for credit applications was not markedly different from last month. There is still credit available to customers that are bucking the trend. This is not like the situation at the end of 2008 when the entire credit system came screeching to a halt and even the best of companies were denied access.

The data this month is mixed but with a decidedly downward slope. The CMI remains in expansion territory, but is holding on to that status by a thread. There may be another month of essentially flat growth in store, but after that the economy will begin to tilt in one direction or another. If there is no real improvement in some of the fundamentals, the index will reflect continued deterioration. There is some resilience evident in the index numbers as the favorable categories are holding their own. The sectors that will drag the whole index further under include those that are most dependent on the decisions that companies made when they were expecting some solid economic growth by now. The credit requested made sense at the time, but now there is some serious concern as far as what happens next if the growth rate remains mired in the predicted 1% to 1.5% region.

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

A bellwether regional Federal Reserve study Thursday continued to pour on the bad news for those hoping manufacturing could continue to bolster overall economic growth despite lagging in other sectors.

The Philadelphia Fed’s index tracking manufacturing conditions in its region, seen as a solid indicator for several other areas around the nation, declined to its lowest point since March 2009. The manufacturing industry index fell to a level of – (negative) 30.7, well below what is considered a neutral rating (zero). News of stagnant and/or slowing conditions mirrors findings in recent months within the Credit Manager’s Index (CMI), prepared by NACM Economist Chris Kuehl, PhD.

While far from a crash thus far, the noticeable slowing of orders leaves few silver linings. The Philadelphia Fed study also found the following:

• Demand for manufactured goods paralleled the decline in the general activity index, falling 27 points.
•  About 29% of the firms had scheduled shutdowns or slowdowns during the summer months this year.
• About 40% said that seasonal factors have a significant influence on monthly production levels.
• The current employment index fell 14 points to -5.2, recording its first negative reading in 12 months.

Manufacturing had carried the economy throughout 2010 and much of 2011. However, the sector is starting to bear more noticeable scars from the lack of the long-predicted, but absent, strong economic rebound.

Brian Shappell, NACM staff writer

The best that can be said about this month’s Credit Managers’ Index (CMI) is that things did not get appreciably worse. The latest data suggest a third month of slump, and it appears the economy is languishing in a state that is not quite in crisis but which isn’t showing energy either. For the third month in a row, the overall index was slightly over 54. The fact that it went up by .4 is nothing much to cheer, as the overall index had been over 55 for the six months prior to May’s slip. “If there is anything to be somewhat encouraged by it is that manufacturing improved over the really down month last July, but at the same time there was weakness in the service sector that didn’t appear the previous month,” said Chris Kuehl, PhD, managing director of Armada Corporate Intelligence and economic advisor to the National Association of Credit Management (NACM).

Very little changed as far as favorable factors were concerned. Sales were essentially flat at 60—slightly down from 60.8—but that is a pretty solid sign given the declines noted in other areas. “It appears sales numbers have started to stabilize and are not that far from the highs reached a few months ago when they crested at 66.3,” said Kuehl. The biggest decline was in dollar collections—from 58.1 to 56.2. There have been other signs that collection activity has been slowing, which is consistent with the overall assessments of the economy of late.

“In comparing the CMI readings to other indices, it is apparent the economy has still not committed to either continued growth or a real decline,” said Kuehl. “There have been some positive signs from the latest set of leading economic indicators released from the Conference Board, but there have also been renewed signs of distress as far as consumer confidence is concerned. Not surprisingly there is a sense that much has stalled in the economy as uncertainty has been the rule of the day.”

Unfavorable factors don’t show signs of increased stress and there isn’t a lot to suggest much panic—at least not yet. There was a pretty solid improvement—from 50 to 55.6—in the dollar amount of customer deductions. This was accompanied by modest improvements in the number of rejected credit applications, which improved from 50.9 to 51. There was also improvement in the number of disputes, from 49.3 to 50. “These are not major shifts by any stretch of the imagination, but at least they are not trending downward any further,” said Kuehl.

The overall index barely changed and the manufacturing and service sectors have simply swapped positions again as far as stress is concerned. The CMI numbers for the last three months show a general slowdown in business activity. There has been a slump in sales, a reduction in the number of new credit applications and a slowdown in the collection process. The economy is essentially stalled and the question is whether this is a reaction to something short term or a reflection of some greater underlying trend. The CMI data hint that the situation is temporary and related to uncertain factors gripping the economy. Much of this information is more anecdotal than anything that can be pinned onto hard data. The majority of the information from the banking sector suggests there is money to borrow. There is available trade credit according to most sources. Businesses are sitting on more cash than they have in a long time and most companies are not having issues paying their bills. The problem is that almost everybody is worried about contingency plans and are sitting back as they wait for something to change.

The demand needed is not there yet and nobody is quite sure why. The jobless situation is certainly a worry, but the fact is that 91% of the workforce is employed. They are nervous about spending and as long as they stay on the sidelines, the manufacturing community does as well. “There are few in the mood to leverage themselves until they have a better sense of what to expect from the government and from the economy as a whole. Everything is more or less in place for expansion, but there has been no trigger thus far and there is plenty to make people more nervous about the future,” said Kuehl.

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

The overall economic narrative in the country for the last month has been a question as to whether the latest run of bad economic news is a temporary phenomenon or is the harbinger of much worse to come. As many analysts have asserted that this is all attributable to the earthquake and “Arab Spring” as those who assert a double-dip recession is setting up for as early as the third quarter. Most of the economic community is somewhere in between, but much of the interpretation lies within the latest run of data, and the National Association of Credit Management Credit Managers’ Index (CMI) for June suggests the temporary impact position has some validity.

The dramatic collapse reflected in the May CMI eased up a little in June. The index numbers bounced around, but these variations were obscured somewhat by the fact that the index as a whole was flat. Considering this month, it is very apparent that the devil is in the details. The overall index number was exactly the same as it was in May—54.2—but there were significant changes in the combined sub-indices for favorable and unfavorable factors.

“The most distressing news comes from the number of credit applications received and the amount of credit extended,” said Chris Kuehl, PhD, managing director of Armada Corporate Intelligence and NACM economic advisor. Many businesses seemed more cautious in the last month or so. Part of this is still related to the issues in Japan and the fear of higher commodity prices, but there is also some growing unease regarding political games. “Few really believe that the United States would put $100 billion at risk in its securities market by not raising the debt limit, but there is intense fear that Congress will take the game too far and provoke a reaction in the markets before it reaches an agreement,” Kuehl said. “It appears this trepidation is affecting the willingness of businesses to expand and seek additional credit. The good news is that sales have risen during this period; in the past, expanded sales usually beget more credit requests and more credit extended.”

The bad news in favorable factors has been balanced out by good news in some of the unfavorable factors. Many signs of distress weakened a little. There were fewer disputes and fewer dollars beyond terms. While there were also fewer bankruptcies, there were still concerns about the number of credit applications rejected and the number of accounts placed for collection. “The overall impression is that there is some separation taking place between those companies that have weathered the last few years and those that had been counting on an economic breakthrough to help salvage their financial position. This is a development we’ve referenced before and the pattern is still evident,” said Kuehl.

As the recession gives way to a slow recovery there is a series of expected moves from the different players in a given industry sector. The market leaders start to anticipate the end of the downturn, and they are ready to ramp up and make an attempt to grab market share from rivals. The best-prepared companies make the first moves forcing competitors to try to keep pace. Some do, but others begin to falter as the business they expected to cover their investment fails to materialize. Right below the market leader category is the market challenger and they are looking for the weak link among the market leaders. They push with their own expansion schemes in an attempt to supplant them. If they calculate correctly they make the jump; if they do not they fall back and start to struggle with cash flow. Right behind the leaders and the challengers are the market followers and they are waiting to see how the bigger battles play out before they choose which approach to emulate.

“Right now the economic recovery is waiting for the market followers to make their move. This is the biggest category of business—and the most cautious,” said Kuehl. The CMI data suggest that this sector is starting to have more active sales activity, which generally provokes more credit demand. The majority of credit requests have been coming from either the most important customers with the best credit or from those struggling on the bottom tier. “When the middle levels start to get earnestly engaged is when there is potential for more general overall economic growth.”

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

The bottom seemed to drop out of the economic recovery in May. The first signs of trouble started to manifest in the April, but by the end of May these threats had become very real and the economy took some steps backwards. The Credit Managers’ Index (CMI) data in April had hinted at the problems with declining numbers in areas like sales, credit extension and dollars beyond terms, but by May these areas and others showed definite strain. “The momentum of the economic rebound has been reversed for the time being and for reasons that should not come as a shock to many,” said Chris Kuehl, PhD, managing director of Armada Corporate Intelligence and National Association of Credit Management economic advisor.

The biggest drop in May was in sales. The 59.4 reading is the lowest since September 2010, and this decline was felt in both the manufacturing and service sectors. There is widespread concern that the consumer was retreating from spending again as retail numbers in general have been tepid. The only reason for an increase in retail activity is due to the hike in gas and food prices. These have forced more spending on the part of the consumer, but this spending has come at the expense of almost every category of retail.

“The CMI data reflects the decline in demand at the manufacturing and wholesale level, and it is very likely that consumer retail numbers will dip correspondingly in June,” said Kuehl. “The CMI data generally presages activity in the consumer sector as it reflects the activity in the commercial sector.”

There are other trouble areas showing up in the data this month. Dollar collections dropped to a level last seen in August 2010 as many companies found themselves in trouble as they were forced to start contending with inflation even as their business opportunities remain limited. This started to show up in April and has since accelerated. As companies start to exit the recession, they often face some severe competitive pressure, as there is nearly always a market leader ready to put pressure on a given industry. As the market leader starts to become aggressive and goes after market share, other competitors in that sector have to keep pace—even if they are not ready. They start to spend more despite limited resources as they fear losing their market position. Add in an inflation surge and there will be some real consequences. Within a very short period of time there will be cash flow challenges unless the expected demand manifests—and as has been pretty obvious that demand has yet to manifest. The inflation that is complicating the financial situation for companies is also hitting the consumer and having a negative impact.

The index of favorable factors had been as high as 64.1 just three months ago in February. Now that index has fallen to levels not seen since October of last year. The index shows that there is still some growth in terms of credit applications and that bodes well for the future assuming that conditions improve and the rate of approvals starts to grow again. Right now there is still a sense that conditions will improve as the threat of inflation fades, but if the threat continues to advance there is likely to be another wave of negative responses.

“The most dramatic changes in the overall index represent an early warning of some bad times ahead if conditions do not improve on the inflation and growth fronts,” said Kuehl. As recently as January all index categories were above 50 and that suggests expansion. Today, there are three important categories that have slipped into the 40s and that creates concern. The biggest drop was in dollars beyond terms—a slide from 50.7 to 46.5. Overall, the combined index fell 1.6%, from 55.8 to 54.2. Many companies are having problems staying current as the costs of inputs rise while their markets remain moribund. Kuehl said that, thus far, there has been little increase in areas like disputes, accounts out for collection and bankruptcies, but if the past is any pattern these areas will reflect the strain in the months to come as business customers continue to grapple with cash flow.

The inflation hike is not solely responsible for the problems manifesting in May, but it is playing a significant role for sure. The plain fact is that most businesses have not seen a return of previous demand as yet and that leaves them very vulnerable to higher costs. The big hike in gas pricing has worked its way through the economy and will be having an impact for the next few months and beyond if its march upward resumes.

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

April 2011 is the month the U.S. economy started to confront dual threats and the credit community almost instantly reflected the transition. For the past two years the focus of the business community has been almost solely oriented toward recovery and finding strategies that would propel them toward that recovery. The threat of inflation was not a concern beyond the sense that at some point all the efforts to dig out of the downturn would come back to haunt the economy. That was before the price of oil started to accelerate at a rate not seen since the 2008 debacle. Now the inflation threat has become a clear and present danger and one that is affecting the business and credit community.

In March the manufacturing sector held its own and provided the sole piece of good news for the Credit Managers’ Index (CMI Report) as a whole, but in April the sector stumbled and exchanged positions with the service sector. In March the news for the service side was not so good, but in April it staged a bit of a recovery and much of this appears to be related to the hike in inflation as well as the reactions from the business community most affected by price shifts. The changes from month to month have been subtle and the CMI itself barely moved from the position it marked in March, up just 0.1% from 55.7 to 55.8. “The devil is in the details,” said Chris Kuehl, PhD, managing director of Armada Corporate Intelligence and economic advisor for the National Association of Credit Management. “Overall sales stayed at almost the same rate from month to month but that obscures the fact that there was a real reversal of fortune with the two sectors.” Sales fell in the manufacturing sector while they rose in the service sector—the exact opposite of what happened in March. Some of this can be accounted for by the fact that inflated pricing in some parts of the economy causes a rise in sales that benefits one group, but punishes another, Kuehl said. Sales from gas station outlets were up so much that the nation’s overall retail numbers rose 0.8%, but when gasoline and food costs are stripped out of that number, the growth falls to 0.3%, a solid indication of how much inflation has had an effect.

Looking at some of the other favorable factors for both sectors there was more evidence of divergence. The number of new credit applications in manufacturing fell to levels not seen since the start of the year, but in the service indicators the fall was even more dramatic—numbers not seen since October of last year. The evidence is pretty strong that business has returned to a more cautious position than they had started to adopt earlier in the year. There is now much more concern about the future of the economy through 2011 and that has caused many businesses to pull back on credit. Given that it was the expansion of credit that had been fueling enthusiasm at the start of this year, one can expect further slowdowns in expansion for the next few months.

Yet another sign of divergence is the rate of dollar collections between the two sectors. Overall, the number improved from 60 to 61.3 but that obscures a shift. Dollar collections were actually down in the manufacturing sector while recovering nicely in the service sector. Commodity inflation is taking a much bigger bite in manufacturing and is affecting cash flow. The bulk of the impact of inflation is being felt in the basic industries at the moment, although the consumer is seeing more of that rise every day. Manufacturers are paying those high fuel costs along with everybody else, but they are also paying record prices for everything from steel to copper to resins and chemicals. It is not just gasoline that goes up when the price of oil rises. The price of feedstock for the fertilizer industry rises and so do the prices of petrochemicals. Transportation costs have risen as well and that affects the manufacturer first as they are paying for the transportation of the raw materials they need.

“The overall news from the CMI is that conditions have stabilized, but the fact is that there is considerable volatility just under the surface,” Kuehl noted. The expectation is that inflation issues will affect the service sector in short order and the advantage held by that category will diminish in future index readings.

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

This month's news is not so positive as recent world events are rippling through the U.S. economy. For the past several months there had been a consistent feeling of optimism—despite some struggling in the manufacturing sector based on solid sales—and the seeming willingness to increase trade credit. That optimism took a hit this month. There were sharp declines in sales, new credit applications, dollar collections and the amount of credit extended—all the positive factors. The overall index dropped from 64.1 to 62.2. "This is not exactly catastrophic as the index remains in the 60s," said Chris Kuehl, PhD, managing director of Armada Corporate Intelligence and economic advisor for the National Association of Credit Management, "but the pace has dramatically slowed and that is hardly what had been anticipated or hoped for."

There were continued signs of distress in the unfavorable factors, but the decline slowed and that is somewhat better news. The overall sense of the March data is that the U.S. economy is struggling to keep pace with the events in the world that have drastically altered everything from commodity price expectations to sourcing decisions and credit allocation. "It is important to note that the ripple effects of the events in the Middle East and Japan have only started to manifest and will be factors for months to come," said Kuehl. "The Japanese catastrophe has affected supply chains all over the U.S. and Europe and that has added considerable expense to manufacturers being forced to find new suppliers or wait for weeks to get what they need from the affected region." The price per barrel of oil has jumped by almost $15 since December and that is now filtering into all sectors of the economy.

The most dramatic change in the CMI data is in the category of dollar collections. The combined index slipped back to levels not seen since November of last year, falling -0.7 from 56.4 to 55.7. Kuehl noted that the real damage here is not that the index numbers are drastically reduced—they are still holding fast in the 60s and upper 50s. The real problem is that expectations had been high and it was anticipated that these numbers would be well into the mid-60 level by now. There had been some expectation that gains would be placing these index numbers into the 70s by mid-summer, but that is no longer the most likely scenario. The gains seem to have stalled for the moment, and it is not likely they will start up again as long as the global situation remains fundamentally unpredictable.

When one looks at the unfavorable factors there is still cause to worry and there will be more concerns as prices start to escalate. The rise in oil prices has been sharp, but this is not the only sector seeing increases. The radical price hikes of all industrial metals and food inflation are as bad as they have been since the debacle in 2008 and are now moving through the economy: high oil prices have prompted higher airfares and freight rates. As businesses face these hikes, they are forced to spend more than anticipated and that puts a strain on their ability to keep pace with the other debts they owe. Many of the companies reporting on their creditors suggest that a key reason for the slowdown in payment has been the spike in operating costs.

If there is any good news in the data for this month it is that the index of unfavorable factors has not changed much as compared to the favorable factors. The negative news is the same as last month, suggesting that some concerns about credit collapse have been reduced. There were fewer bankruptcies in this period and that is good news. The other factors worsened a little, but not dramatically. "The anecdotal evidence suggests that most creditors are reacting to some short-term shocks but expect to be back to normal in the months to come—providing that the situation in the Middle East does not worsen appreciably," said Kuehl.

(Note: A link to the full report, complete with tables and graphs, along with CMI archives, is available at the eNews version of this story. It can be found at this website, nacm.org

"The assertion is that 2011 is the transition year 2010 was supposed to be," said Chris Kuehl, PhD, managing director for Armada Corporate Intelligence and economic advisor for the National Association of Credit Management (NACM). "The ‘green shoots' that started to appear about this time last year wilted and died by the end of spring, but 2011 is starting to show some signs of greater economic stability," he said. "This trend has been noted in several indexes and indicators and the Credit Managers' Index (CMI) is no exception." There was an overall improvement in the numbers-from 55.8 to 56.4-the highest point reached in the combined index since April 2010 when the index hit 56.5. What makes this latest number more encouraging is the expectation that the index will continue to see improvement over the next several months, noted Kuehl. Back in April that high point was followed by steady decline that took the index all the way back to 53 in August before a slow rebound got underway.

The most encouraging indicator this month is amount of credit extended. The jump from 61.7 to 64.8 is very significant as this is the signal that many have been waiting to see. While sales and new credit applications slowed a little in January, the numbers remain robust due to the overall increase in activity in these indicators over the past several months. Sales dropped from 65.9 to 63.5, which is still very respectable given that the holiday season had ended. New credit applications fell from 60.1 to 58.6, but that is also somewhat attributable to the arrival of a generally slow time of year as compared to the last quarter.

The fact that credit extended sharply increased despite the slowdown in sales and credit applications indicates more credit availability than in previous months-quite a bit more. This indicator has not seen such high readings since early 2008, and those were barely at 62, much less at 64.8. Banks are reporting a loosening of credit in the United States and since lenders are more active, more commercial credit is appearing as well. Companies are far more willing to offer credit and, as they start to consider expansion in the coming year, it will also create more opportunity to engage their clients.

This was not the only piece of good news in the CMI. There was improvement across the board in the negative factors. Rejection of credit applications was subdued and there was improvement in accounts placed for collection. Even disputes and bankruptcy data showed improvement. The positive development in these negative indicators over the last few months has been identified as an important trend in previous years.

"As companies start to see increased sales and begin to anticipate growth opportunities in coming months, it is important that they get positioned to take on more debt, if needed, for that expansion," said Kuehl. "If they are planning to access more credit, they generally have to catch up on their current debt first." In the midst of the downturn, companies tried to conserve cash flow at all costs, during which they are more prone to stretching out credit obligations. The result is reflected in the deterioration of unfavorable factors. As companies recover and catch up on their credit, they are in a position to request more and in a position to be granted that access. "This is what seems to be happening now," said Kuehl. "Companies are setting themselves up for more growth in the months to come. The data from the CMI is reflected in the latest economic numbers from the Purchasing Managers Index (PMI) as well as surveys from groups like the National Association of Business Economists and the Conference Board."

The index now stands at a level that normally signals more rapid expansion in the near future.

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Source: National Association of Credit Management