The index improved dramatically in the last month and for the best of reasons. There are two sectors that can get the index to move. The first is the collection of favorable factors like sales, credit applications submitted, dollar collections and amount of credit extended.

The second is the collection of unfavorable factors. These are the indicators that one wishes to see decline as they signal that companies are struggling with their debt. These factors include rejections of credit application, accounts placed for collection, disputes, dollar amounts beyond terms, dollar amount of customer deductions and filings for bankruptcy. It is good news when either of these sectors starts to move in a positive direction but activity in the favorable category generally signals a bigger set of gains in the overall economy.

This month saw some solid activity in those favorable categories for both the manufacturing and service sectors. The sales numbers returned top levels not seen since May and are now back above 60 again. The sales indicator had been dropping steadily all summer and had been as low as 57.2, a reading that had not been seen since December of 2009. The boost in sales was seen in both manufacturing and services.

At the same time there has been a small jump in the number of credit applications – reaching a level not seen since June.  At the same time that there were more credit applications there were fewer of the rejected and that is a solid sign for the future. The overall feeling is that credit is starting to loosen up again after the decline in the summer. Banks are getting a little more aggressive but more importantly there is more credit being extended by companies seeking to capture more share from their consumers. The amount of credit extended jumped as well and is no back to levels set in May of this year.  The dollar collection number had already started to improve in the survey from September and it continued to gain – reaching 61.9 after being at 60 the month before.

The news continues to improve with the unfavorable factors as well. These are the signs of trouble and when they begin to reverse there is a return to confidence in the business community as a whole. In past years there has been an identifiable pattern when it comes to these factors. When disputes decline and bankruptcies decline and dollar exposure declines there is evidence that companies are trying to catch up on their debt. That is both a signal that their business prospects have improved and a sign that there is activity planned. The pattern is that companies seek to get current with the credit so that they are in a position to ask for more so that they can expand. This seems to be happening again albeit at a subdued rate.

The most dramatic improvement was in filings for bankruptcies as the index moved from 55.7 to 57. There was also improvement in accounts placed for collection – moving from 50.4 to 51.7. These are not drastic changes but almost across the board there was improvement that took index readings back to what they were in the beginning of the summer.   Starting in June of this year there was a distinct slump and there were months when it looked like the index as a whole would soon slide back into contraction territory but now the trend is in the other direction. The only area where conditions deteriorated a little was with disputes – the index slipped from 50.8 to 49.9 and that is only the second month this year for disputes to be under the 50 level.

When one breaks down the subsectors of manufacturing and services there are some more dramatic changes. The favorable factors for the manufacturing community didn’t change all that much but they all remained in positive territory. The big shifts took place in the unfavorable factors. There was a dramatic improvement in dollar amount beyond terms – a jump from 49.6 to 55.2. There was a similar leap in accounts placed for collections – moving from 51.9 to 53.6. These are both indications that manufacturers are getting on top of their credit again and that is often prepatory to asking for more in the near future. The action in the services sector was similarly positive but this time it was the favorable factors that saw the biggest gains. There has been an improvement in sales – indicators moving from 59.3 to 62.2. There was a significant gain in the number of credit apps as well – 55.1 to 58.7. Dollar collections went up and the only decline was a slight drop in the level of credit extended – from 60 to 59.6. Given the role that the service sector plays in the overall economy this is very good news indeed.

The overall indicator that sets the tone for the whole survey is the top number and this month the index reached 54.9 after falling to as low as 53 in July. The numbers are not yet signaling that happy days are here again but the trend is in the right direction again and there is some renewed hope for a reasonably strong finish to the year.

Credit Management Index:  The National Association for Credit Management conducts a monthly survey of those in the credit management profession to determine what is happening in the greater economy and for the past couple of years the interpretation and analysis of that survey has fallen to Armada Corporate Intelligence.   The index is modeled on the Purchasing Managers’ Index conducted by the Institute of Supply Management in a number of ways. The two use a similar scale that indicates growth with readings over 50 and contraction with readings under 50.

Courtesy Dr.Chris Kuehl Armada Corporate Intelligence