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

The Federal Reserve’s periodical roundup of economic conditions in each of its 12 districts throughout the nation finds that, in most areas, growth is continuing but at a notably weaker pace than the same time last year. Additionally, the word of the day appears to be “uncertainty.”

The Fed’s Beige Book roundup finds growth best characterized as “modest or slight,” with a decidedly slower pace than in recent months or early fall 2010. Though not every industry sector or district is reporting bad news, conditions are not nearly as positive as had been expected because of long-time “expert” predictions that, by this point, the economic recovery would be in or near full-swing.

Consumer spending, overall, was up for the recent six-week period ending in early/mid-October. However, much of that was driven by auto sales and tourism increases. Businesses also increased spending in most districts, with areas of construction and mining equipment as well as auto-related products setting the pace. Yet, in a continuation of the good news-bad news theme, Fed contacts noted particular “restraint in hiring and capital spending plans:”

Manufacturing, long the proverbial bread-winner among all industries during the slow recovery period, showed improvement from the declines reported in the last two Beige Book periods. Again, the auto producers performed best.

On the credit front, a lengthy period of small improvements in credit conditions are ceding in some areas for anyone not in the very top tier of borrowing. That said, demand remains stunted anyway, especially in districts like Chicago and Kansas City. Also important to those two districts were declines in the agriculture sector. While yields have not fallen to shortage level, almost unilaterally, yields are noticeably down for this time one year ago. Part of this is fallout from unpredictable and/or uncooperative weather earlier in the year, especially in the central-south part of the country.

Real estate, unsurprisingly, was changed little as activity remains at low, weak levels.

Brian Shappell, NACM staff writer

A roundup of economic activity completed about every six weeks by the Federal Reserve found that about half of its 12 districts were experiencing slow or stagnant economic growth. There were even some reports of slowing growth during the period in some places, including the Philadelphia district, during the period that began in mid-July and ended in late August.

The Federal Reserve's Beige Book report contained a bit of the same old story: commercial and residential real estate were considered weak, an employment growth rebound has yet to come to fruition and business loan demand is far from robust. What is of note is the continued slide of the manufacturing sector, which had carried economic growth during much of the last two years. Fed contacts illustrate that conditions remain mixed, but the pace of activity has slowed in many districts, including several key ones. Notably, the pace has dropped off in the key New York, Philadelphia and Dallas districts. Districts such as Boston and Dallas also noted a decline in demand from European-based customers. However, at least four districts (Minneapolis, Kansas City, San Francisco, St. Louis) reported increases, albeit mild ones.

Additionally, contacts told the Fed that an uptick in economic uncertainty and the rollercoaster-ride of the stock market has caused them to downgrade their near-term outlooks. In a spot of good news, it appears credit quality has improved, and availability has not worsened, the Fed noted.

Meanwhile, the agriculture sector, like most others, appeared to be a mixed bag as well. Hot and dry weather has been causing problems for producers in the Chicago, St. Louis, Kansas City and, especially, Dallas districts. Still, those who’ve weathered overly dry or, on the opposite end, wet conditions from Hurricane Irene, have high values for their products.

Brian Shappell, NACM staff writer

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 Federal Reserve’s latest of roundup of economic conditions in the nation’s 12 regions sings a familiar tune to reports from the last three or more months: that growth is still occurring in the U.S. economy, but at a noticeably slower pace.

Slow and modest growth is the name of the game, said the latest edition of the Federal Reserve's Beige Book, unveiled Wednesday. Part of the reasoning for the lasted moderation of the growth pace, especially in the middle of the country, was concern over political disruptions in the run-up of the debt ceiling debate and shutdowns of some governments entirely, particularly Minnesota. Also in play in many of the central region is wrench that unpredictable weather has thrown into matters in the agricultural sector.  Those in the agriculture industry who did see their crops survive did enjoy high prices for their commodities. However, such higher costs because of weather-related supply reductions and the aftermath of the previous six-week period’s gas price spike, mean businesses around the nation had to contend with higher costs of doing business. One light at the end of the tunnel, however, is the belief/hope among Fed contacts that falling gas/oil prices during the latest six-week tracking period will continue in the coming months, providing a boost for growth.

Manufacturing remained steady in most districts, though some slowing of growth levels was reported. An uptick in auto production returned as Japanese supply-chain disruptions finally started easing. Granted, auto producers still are playing from behind, so to speak, and the back-up could lead to slower automotive and auto-parts sales for a bit longer.

Credit conditions have changed little, through there were some reports of the cost of capital dropping amid inter-bank competition for well-regarded business borrowers (Richmond, Atlanta, Chicago, Dallas, San Francisco). Commercial real estate was about split down the middle between the have’s reporting improvement and the have not’s continuing to report weak conditions.

To view the full 12-region Fed Beige Book report, click here.

Brian Shappell, NACM staff writer

A regional study tracking manufacturing activity indicators in the Mid-Atlantic that is often used to predict future conditions for the national picture took a surprising and sharp tumble in June, adding to recent concerns for the previously strong sector.

The Philadelphia Federal Reserve’s Business Outlook Survey fell to its lowest reading in 31 months (down to a level of -7.7 from 3.9 just one month ago) on concerns over labor markets as well as costs of transportation in the form of surcharges, commodity price-hikes and energy bills. Only 14% of those polls reported employment increases or a need for them in the near future.

The findings are not surprising following the Federal Reserve’s national picture painted by Beige Book earlier this month. The study found in most of its 12 districts that the economy was still growing, but the pace of what was already small growth has fallen off dramatically, partly on the inability of the manufacturing sector to carry other categories as it has been doing.

NACM’s breakdown of all 12 Federal Reserve districts in the latest Beige Book is available by clicking here.

Brian Shappell, NACM Staff Writer

(Updated 6/10/11 -- hyperlinks to district breakdowns at bottom) Though the Federal Reserve’s newly released Beige Book economic summary found an economy still slowly growing on aggregate over the last six weeks, the pace continues to decelerate in key bank regions including New York, Philadelphia and Chicago.

Even the once mighty manufacturing sector, responsible for much of the growth measured in the last year, is starting to see its expansion rate slip in several areas and concern creep in, according to Beige Book. Part of the problem is the aftermath the Japan earthquake/tsunami/nuclear crisis is having on the supply line of automotive parts. It’s an especially notable problem in districts including Cleveland and Richmond, among others.

Conditions deteriorated for most districts in the areas of agriculture and materials prices, as well. However, overall, commercial real estate and banking seem to be about on part with recent Beige Book reports with some scattered signs of tepid improvement on the horizon.
One of few districts reporting a noticeable ramp-up in the pace of overall growth, perhaps partly because of its ties to the oil industry, is the Dallas district that encompasses all of Texas.

For analysis from each of the 12 individual Federal Reserve districts, click here.

Brian Shappell, NACM staff writer

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.

Review of the most recent economic growth conditions in the 12 Federal Reserve districts and the outlooks for them appear to both continue to grow, slowly, but not without some significant shades of gray.

The Fed’s latest Beige Book regional conditions roundup found only moderate improvement to the economy; but it was an improvement characterized as “widespread across sectors.” Perhaps the most enthused about overall recent growth and near-term prospects were contacts in the Kansas City district.

The Beige Book noted manufacturing continued to lead the way for the rest of the economy with the most steady improvement and, long-absent evidence of increased hiring. Ten of the 12 district (excluding mixed results in the Boston and Richmond districts) demonstrated “robust” manufacturing sector activity, with New York performing exceptionally well. There was even talk of improvements in the long-battered commercial real estate sector, with more than half of the districts noting reasons for an optimistic view.

Granted, there were plenty of worrisome signs in the latest Beige Book roundup, which tracked a period from mid-to-late February through early April. Chief concerns among Fed contacts were the possibility of significant sales and production disruptions stemming from the Japan disasters, elevated commodity prices and the impact of a still dragging resident real estate sector on household wealth/consumer confidence.

(Note: for an extended version of this story, featuring a region-by-region breakdown of the Fed’s 12 Beige Book districts, click here.

Brian Shappell, NACM staff writer

As Federal Reserve Chairman Ben Bernanke carried a message of cautious optimism to Congress on Wednesday on strong manufacturing gains, exporting activity and rising business confidence; the Beige Book economic conditions roundup of the 12 Fed districts told a similar tale.

The March-released Fed Beige Book, summarizing district-by-district economic conditions eight times annually, noted retail sales and manufacturing increases in all districts, except for St. Louis, even as crippling snowstorms blanketed much of the nation during portions of February. The Cleveland, Atlanta, Minneapolis and Kansas City district noted especially "sold expansion" for manufacturing. However, Chicago noted that its rise was more moderate than in past periods.

Meanwhile, about half the districts reported the long-wounded commercial real estate sector "showing signs of gaining traction." Commercial loan demand also was mixed, though financial institutions reported widespread improvements in all other loan segments. Credit standards, however, continued to be tight even as credit quality has improved, the Beige Book indicated.

Agriculture, in the areas of crop yields and production, may have suffered the worst because of the cold and snowy weather conditions. There were, however, some exceptions in areas like in the strong-performing St. Louis district. Additionally, high prices of Ag commodities such as cotton, corn, soybean and wheat, among others, continued to hold firm or improve.

First District - Boston
Manufacturing contacts appeared to start 2011 in celebratory fashion as sales and outlooks demonstrate continued strength. One auto components manufacturer called 2010 his best year to date. Semi-conductor and pharmaceutical industry contacts also did particularly well, the Fed noted. Commercial real estate fundamentals are stable in many areas (Hartford, Boston) or improving. Retail sales remained positive though inventories remain tight.

Second District - New York
Sectors like those in automotive sales reported better ordering and inventory activity. Upstate New Yorkers saw 10% to 20% increases compared to January 2010, for example. Commercial real estate continued to struggle with high office vacancy levels, but stability is creeping in. Even the much-maligned condominium market appears to have steadied, the Fed said. Business lending standards tightened even as commercial delinquency rates continued to show improvement.

Third District - Philadelphia
Strong shipping and new order increases were realized in the district between January and February. Eleven of the largest manufacturing sub-sectors all had positive things to say about demand, the Fed noted. Contacts pontificated that exporting was behind the high demand and will continue to drive it in 2011. Business loan volume reportedly increased slightly though companies largely "are not looking to borrow." Commercial real estate activity hasn't much changed. One contact predicted it will take some office markets "several years to recover the loss of occupancy caused by the recession."

Fourth District - Cleveland
New orders and production were generally up though there were a few expected seasonal declines. Manufacturers expect moderate growth throughout 2011, with particular strength in the energy-related, auto and heavy equipment industries. The district is among those still reporting weaker commercial real estate activity. Commercial lending requests held stable, edging toward slight growth since late 2010. Credit quality of businesses was seen as "stable to improving," said Fed contacts.

Fifth District - Richmond
Manufacturing continues to perform well in the region, though there is concern with raw materials prices because of extreme demand in nations like China and India. Most business loans are coming from larger area businesses in the process or mergers/acquisitions. It appears business confidence is improving, according to Fed contacts' reports; so expect an uptick in lending in the near-term. Commercial real estate saw "broad-based, but moderate improvement. Though vacancy rates remain high, pricing and leasing rates have stabilized for the most part. Agriculture contacts rued cold temperatures that limited crop development and profits alike.

Sixth District - Atlanta
Growth is the name of the game in manufacturing, but more so in new orders than production levels. Shipping experienced particularly high demand though that area faced weather problems in January and could face fuel cost issues in the coming Fed tracking period. Credit conditions are a mixed bag in the district: improving for those outside of commercial real estate, and worsening for those in it. Cold temperatures and drought conditions have hit Ag businesses in the district, particularly Florida, hard. The spot of optimism comes in global demand elevating prices of commodities such as cotton and soybeans.

Seventh District - Chicago
While manufacturing continued to expand, Fed contacts quipped that they were surprised that the gains were more moderate than in previous months. The worry might be unfounded though, as new orders and backlogs continued to rise at strong levels. Steel, automotive and heavy equipment continue to lead the pack in the sector. Rental vacancy rates stabilized, though pressure on pricing remained. Businesses, especially in agriculture and energy, again appeared more free to spend and invest here than in other districts. Credit availability and use of lines showed improvement.

Eighth District - St. Louis
Dubiously, the district was the only one to show a decrease in manufacturing activity, with many plants planning to close up shop or reduce operations (employment) soon. This includes the wood products, auto, aircraft and primary metal industries. Commercial property demand remained anemic. Like District Six, credit availability depended on the industry, with commercial real estate drawing the short straw, so to speak. Agriculture saw total production on the rise, though there were certainly yield winners (cotton) and losers (corn, soybeans).

Ninth District - Minneapolis
Manufacturing increased, notably in the less populated markets. One of the areas with reports of production weakness was Minneapolis. Still, certain industries there (metal fabricators, semiconductor chip producers) continue to expect significant production gains in 2011. Commercial construction permits rose noticeably, giving hope to those in the industry despite flat vacancy rates. Agriculture conditions improved on the strength of commodities prices. Recent Department of Agriculture rulings on using certain genetically modified products proved helpful to some.

Tenth District - Kansas City
Though slowing was noted in the high-tech and transportation sectors, overall manufacturing grew. Concern did grow over input, raw materials costs though. Commercial real estate has stabilized; but credit conditions for the sector still were considered "constrained" and worsening. Credit conditions were stable for other industries, said Fed contacts. Weather and supply issues hurt crops badly, but lifted prices considerably for those whose yields survived the double-whammy.

Eleventh District - Dallas
Manufacturing's growth in the district depended on the industry: growth in orders for high-tech, petrochemical, food and aviations products but less so for those in the construction game. Agriculture had a virtual horror show on its hands as "exceptionally dry conditions along with extended periods of below-freezing temperatures adversely affected the vegetable crop in Texas [and] greatly stressed livestock..." Commercial and industrial loan activity was mixed, though credit quality improved in many cases.

Twelfth District - San Francisco
The manufacturing rebound continued with strength in areas including technology, semiconductor, commercial aircraft and petroleum refinery production. Commercial real estate was generally weak, but vacancy levels have stopped rising for now. This is tied to a recent increase in commercial rental space demand. Unlike most districts, District 12 did not experience much extreme weather, so most crop production was solid, and "robust" demand continued.

Brian Shappell, NACM staff writer, can be reached at brians@nacm.org

This month's Credit Managers' Index (CMI) from the National Association of Credit Management (NACM) reveals a tale of two economies and two strategies. There is continued good news in the index with sales and credit availability, but there is some very bad news as far as the toll this economy has had on business thus far. An impressive growth in sales pushed the number well into the 60s with a reading of 66.3-the highest since the recession started in 2008. Credit applications experienced the same growth, rising to 60.3 after having slipped to 58.6 in January. This number is also the highest since 2008, suggesting that companies still expect growth and are taking steps to get ready. The good news continued with dollars collected, which improved from 60.9 to 63.4. And, finally, there was good progress in the level of credit extended-an increase from 64.8 to 66.5.

The sum total of all this positive trending is an improvement from 62 to 64.1 in the favorable factor index. "What then is the problem?" asked Chris Kuehl, PhD, managing director of Armada Corporate Intelligence and NACM economic advisor. "Why is overall growth in the CMI non-existent? The 56.4 reading this month is the same as last month despite the good numbers."

This is the vexing part of a transition economy, said Kuehl. This is the time that companies move aggressively to capture market share due to the sense that the consumer is starting to engage-an assumption reinforced by overall economic numbers. The retail sector finished 2010 stronger than expected and the last set of data from the Purchasing Managers Index (PMI) show substantial gains in both the manufacturing and service sectors. Consumer confidence is up as well. These are the signs everyone has been waiting for, but they are not the signs of a fully recovered economy.

This situation creates the same pattern every time. The strongest competitor in a given market, the market leader, starts responding to anticipated demand with more capital investment, some hiring and additional marketing. That provokes the market challengers in that sector to respond in kind to maintain their edge. Right behind them are the market followers that also have to react to the moves of those in the dominant position. It is a chain reaction driven by the need to hang on to market share-a race that some companies are better positioned to enter. They are the ones that can wait for the recovery. Those that are not sitting on enough cash have no choice but to make investments and hope that the timing is right.

One of two things will happen to these companies. If the timing is right, the investment will pay off. The anticipated demand will manifest itself, and the cash flow will be there to handle the investment and credit requests. If the timing is off or if the company is forced to respond to the competition sooner than preferred, the debt soon becomes brutal and business failures ramp up. This is the signal sent by this month's index. The two negative factors showing the biggest increase were bankruptcies (falling from 59.1 to 56) and accounts placed for collection (moving from 52.5 to 49.9). Other indicators deteriorated as well. In the end, the declines in the unfavorable factors dragged down the combined index and left the CMI flat for the month.

This part of the transition out of a recession can be the most brutal. Companies barely hanging on could survive if there is little additional pressure. Now with the competition starting to heat up, these struggling companies are left with poor options. They either just accept the loss of their market or they gamble on their ability to hang on. If they guess wrong, they get into trouble soon. It is now a matter of how patient creditors can be and the point where credit managers must really show their skill at reading businesses. If they restrict an account to reduce exposure, they strain the relationship and may lose that customer should it rebound. If they give too much and the company goes under anyway, they have lost a lot of money and could put their own company in some peril.

Analysis of the recently released statistics, including those of the Commerce Department, demonstrates just how tricky this process can be from month to month. The headlines are encouraging enough as they indicate a gain in durable goods orders of 2.7%. That is good news, right? It would be if the hike in orders was better distributed. However, once again, the transportation sector throws the numbers off.

The airplane manufacturing sector is a huge part of the industrial community, and it is a business that is not known for its smooth patterns. If Boeing has a good month, as they did this time, the durable goods numbers look pretty swell; and if they have a bad month in sales, the numbers look grim. Step one, therefore, is to strip out those airplane numbers to see what else is happening in the sector.

The first blush look at the data is depressing. The numbers suggest a pretty profound decline of 3.6% from last month, and some of the detailed reports on new orders look even worse. That assessment might be premature as this is the time of year that creates problems for statistical analysis. The system used by the Commerce Department is subject to some serious criticism by economists for the way it handles seasonality. This means that what looks like a real collapse in the durable goods numbers may not really be all that awful. This creates some consternation and confusion -- 'what is really happening here?'

Analysis: This is when other pieces of information become critical. The Purchasing Managers Index is a much better month to month gauge as far as the overall manufacturing sector is concerned, but it doesn't necessarily strip out the durable goods makers. For what it's worth, the PMI has been pointing in a pretty confident direction for the bulk of the year.

The manufacturing community is once again between a rock and a hard place. The growth over the last few months has been largely propelled by the anticipation of more robust economic growth and, given the data over the last couple of months, it is a good bet that there will be growth. It is not easy to determine just how much growth there will be, however, and that means that some manufacturers will have overproduced in anticipation of consumer response.

Source: Armada Corporate Intelligence

Manufacturing was one of few bright spots for the economy in 2010, and it's expected to be much of the same story this year. However, while results were still positive, market-watchers got a surprise Thursday when an index tracking the sector actually declined from December.

The Federal Reserve Bank of Philadelphia's January 2011 Business Outlook Survey, generally seen as somewhat of a bellwether indicator for manufacturing, predicted the sector will remain in a growth mode for much, if not all, of 2011. However, it was notable and somewhat unsettling that the survey's future general activity index fell five points, to 49.8 from 55.4 in January. Similarly, the indexes for future new orders and shipments "remained at relatively high levels but also declined, falling 7 and 3 points, respectively."

Still, Philly's Fed branch assured that indicators such as long-term demand, new orders and shipments, among others, point to continued manufacturing growth. And though the index declines raised a few eyebrows, the Fed maintained "firms remain quite confident that an expansion of manufacturing activity will continue through the first half of the year."

Brian Shappell, NACM staff writer