Analysts looking for light at end of tunnel

Are we there yet? That’s the $787-billion question that everyone wants answered. Has the recession roller coaster finally bottomed out, or at least lost some of its angry momentum?

Things may indeed be slowing down, at least in the U.S. credit market, and analysts are hoping the light at the end of the tunnel isn’t too far away. April’s Credit Manager’s Index report, issued monthly by the National Association of Credit Management, reveals three months of growth in favorable factors such as sales, new credit applications and the amount of credit extended in the nation’s manufacturing and service sectors.

The combined CMI for April was 44.3 (a 1.3 percent gain from March’s index and a full 3 percent increase since February). It’s the index’s highest reading since last November and a positive trend according to Dr. Chris Kuehl, NACM economist and managing director for Armada Corporate Intelligence in Kansas City, Kan. Unfavorable factors like rejection of credit applications and bankruptcy filings saw a small decline while accounts placed on collection saw a small increase. Data in the capital sensitive manufacturing sector is showing improvement and Kuehl says companies who have so far survived bankruptcy will likely continue to thrive. Numbers in the service sector are also slightly up giving some relief to an industry under pressure from rising unemployment.

“What triggered this recession was a crisis in the credit and banking system. Consumers ran into problems immediately and access to credit vanished,” Kuehl says. He adds that the last quarter of 2008 (October through December respectively) were the three worst months of the recession to date. “There was a complete lockdown in the credit market. That’s when we saw massive amounts of delinquencies and bankruptcies,” he says.

Kuehl says that the magic number for the CMI Index is 50. “We use a diffusion index. The way that index works is that anything over 50 is gross and anything under is essentially contraction,” Kuehl says. “There had been concern that the April numbers might have been lower, but they came closer to matching the more robust pace in February. We’re pretty confident that we’re on a track that will continue to grow fairly steady.” Kuehl is hopeful that the upward trend will last on through the summer.

The NACM was founded in 1896 in Toledo, Ohio, by a handful of Buckeye businessmen the same year their governor, William McKinley, entered the Oval Office. Today, the association makes its home in Columbia, Md., where it has grown into the leading resource for credit and financial management information and education, supporting more than 19,000 professionals worldwide.

The CMI study was created seven years ago and the first index was published in January 2003. Data from a national survey of credit and collection professionals in the manufacturing and service sectors is collected and tabulated based on factors from their monthly business cycle, providing a “benchmarking and forecasting tool that looks at the entire cycle of commercial business transactions.”

“We realized that there was the ISM Purchasing Managers Index and other popular indexes and that the CMI gave just another angle to look at these economic indicators,” says NACM editorial director Caroline Zimmerman.

Zimmerman adds that CMI has been gaining a foothold as an indicator itself now that they have a number of surveys under their collective belt. “People look at it and project where things are going… the numbers have really been on target as far as what has been happening,” she says. “Credit managers have a comparable (perspective) since they are a different part of the chain. We’ve been running almost 1,000 responses for each survey for the last six months or so.”

Kevin Giles, corporate credit manager for Southern Pipe & Supply in Meridian, has participated in the monthly surveys since 2007. “We saw some deterioration in our markets, and I thought it would be a good tool to gain access to the information and start monitoring it closer,” he says. Giles says that NACM e-mails him a link to the survey website where it only takes minutes to answer their questions. “It’s just another piece of the puzzle,” he says, “It helps me get information on companies in our industry and get a little bit better feel of things.” Giles says that while conditions haven’t gotten better for them economically, they haven’t gotten any worse, either.

“Companies are more willing to finance their consumers,” says Kuehl, “This indicates that they have access to credit and that more people are paying their loans.” Kuehl says trends similar to the CMI index results have been noticed in the report cards of 18 of the nation’s largest banks, banks that the White House and Treasury Department put under on a 90-day “stress test”. Nine of those banks have enough capital to weather another economic firestorm; 10 others, including Bank of America and Citigroup, have more work to do.

“Most of them are in the position to get completely solvent within a year. That’s encouraging people that there is money,” Kuehl says. “If the banks start to loan, there is an immediate reaction in the credit market.”

Contact MBJ staff writer Stephen McDill at stephen.mcdill@msbusiness.com.

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