As discussion grows on whether or not the recession is ending, the Credit Managers’ Index continues to improve. CMI data began to show some upward movement in February 2009 and now has carried forward those gains for four straight months through May.
As discussion grows on whether or not the recession is
ending, the Credit Managers’ Index continues to improve.
CMI data began to show some upward movement in February 2009
and now has carried forward those gains for four straight months through May.
There have been additional recent indicators of recovery: consumer confidence
is up, durable goods orders are up, first time claims for unemployment are down
and the housing market is showing some movement.
The latest CMI combined index rose from 44.3 to 45.4, which equals levels not
seen since October 2008 when the overall economy began its major slide. The
index is certainly moving in the right direction and is now only a few points
away from breaking above the 50-point threshold that would indicate expansion
as opposed to contraction.
Chris Kuehl, Ph.D., a National Association of Credit Management economist,
said, “The recession essentially came to an end in February and March of 2009.
The CMI data, combined with various other measures, suggest that the economy
finally reached its lowest point and has been in the recovery stage since.”
Kuehl pointed out that this doesn’t mean the economy will come roaring back in
the next few months, but asserted that the second quarter will be the last
quarter of negative GDP as the third quarter should show some growth.
The specifics within the survey reveal some important driving factors in
economic recovery. For example, sales jumped from 37.4 to 41.8, representing
one of the biggest increases in the last several months. There has also been
substantial movement in the new credit sphere and that is a sign that
businesses have started to lean toward expansion again. One of the underlying
factors the CMI captures is the access to capital. Without the presence of
additional open capital markets, there is no opportunity to expand credit; the
CMI is now showing that some of that credit is being extended again.
Additionally, a couple of negative factors declined, reflecting some stability
in terms of delinquencies and disputes and some reduction in dollars
There is still a great deal of regional and sector variation, which mirrors the
performance of the U.S. economy as a whole. The states that have seen the
highest rates of job loss and bankruptcy - California, Florida, Michigan and
Ohio - are seeing the weakest performance in terms of credit. However, some
states seeing severe declines - most notably Arizona and Nevada - have shown
The manufacturing sector continues to improve slowly. While the index only
moved slightly from 44.4 to 45.3, that was enough to put it in a position not
seen since September 2008. The most improvement tended to show up in the
reduction of unfavorable factors, as favorable indicators basically were
unchanged from last month’s data. By most accounts the manufacturing sector is
just now showing some positive movement this month, and it is possible that
credit activity in the sector may have provided some advance warning.
The growth in the service sector has been most impressive this month - jumping
from 43.5 to 45. This has been spurred by higher sales and a very dramatic
expansion of credit. The growth in this sector is especially important in the
U.S. economy since the service sector represents close to 80% of the nation’s
GDP. The diversity of the sector makes instant analysis challenging, but CMI
data suggests that only retail remains in a serious slump.
There has been some improvement in the entertainment and tourism sectors,
although it must be pointed out that tourism fell quite far and any improvement
looks spectacular in comparison. These numbers are at their highest levels
since last October as well.
The health care and hospital-related service arena has provided the biggest
jumps in growth numbers. This is nearly the only sector that has seen job
growth in the last year; there is a renewed sense of urgency in health care-related
industries as the government begins to determine what will likely change in the
system. The CMI data backs up some assertions from other groups, including the
National Association of Business Economists, which points to the recovery track
in services as a key indicator for its upwardly revised assumptions about the
There is very little positive news coming from the
automotive sector or from those connected to construction in general. Aerospace
has been down as well, but on the plus side there has been expansion in the
energy sector as well as in the growing field of medical manufacturing.
Looking at the year-over-year performance, there is even
more reason to take heart in the pace of the recovery. It is beginning to show
the classic “U” that signals a normal recessionary pattern. At the moment, the
gains are taking the index back to where it was in October 2008-just after the
meltdown started to accelerate. If the trend continues at its current pace and
in the same direction, the index will be back above 50 by mid- to late summer.
That would reinforce the assessments by various groups that hold that real GDP
growth will return in the third quarter.