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Credit Managers' Index for February Suggests Robust Future for the Economy

The Credit Managers' Index (CMI) is now sitting at 55.8, rising a full percentage point above January's reading. The index is at its highest since April 2011, a time when most indicators were pointing to a pretty solid year. Readings from this month are strong in key categories providing some confidence regarding what happens from this point.

The sales number is one of the most watched and it reached a level not seen since last April (64.4). "Once there is positive movement in the general sales category, there is often improvement in the index of unfavorable factors as well," said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). "An expansion in sales allows companies to catch up on their debt and improve their overall credit standing." Dollar collections jumped as well, dramatically—from 56.8 to 63—and like the expansion in sales is a sign of improved business conditions. More positive movement came from the amount of credit extended, which rose slightly from 63.3 to 64.3. "This bump in overall business activity is a precursor to additional expansion," Kuehl added. The only decline for the month was in new credit applications, which fell from 61.9 to 59.5. It was not a big drop, but suggests that many of those that were looking to expand and needed credit have already made their move.

The index of favorable factors rose from 61.4 to 62.8, marking the best reading since February 2011. This is also the third month in a row that the favorable factors index has been over 60. The index of unfavorable factors has also shown improvement as it moved from 50.3 to 51.1. "The damage from the recession is still manifesting in the unfavorable categories, but at least the index has remained above 50 for the past four months, and the current reading is better than it has been since April of last year," said Kuehl. "The theme here is that the CMI is about where it was in the spring of 2011, a period during which optimism was peaking. The problem in 2011 was that conditions deteriorated sharply after that peak and by the middle of the summer, the economy was back in the doldrums and the CMI was reversing course swiftly." Last year, the shocks that sent the economy reeling included the hike in oil prices and the supply chain crisis precipitated by the disasters in Japan. Thus far, the 2012 economy has not been visited by a crisis of that magnitude, but the recent hike in oil is not welcome in reminding business of how fragile the recovery remains.

There was not a great deal of movement in unfavorable factors, but for the most part the movement was positive. "There has been very little real shift in the numbers since this time last year, but the good news is that four of the six unfavorable factors are now over 50 and that is an improvement over last month when there were only three indicators trending in expansion territory," said Kuehl.

The online CMI report for February 2012 contains the full commentary, complete with tables and graphs. CMI archives may also be viewed online.

Source: NACM