–Many of Weakest Creditors Now Out of the System

WASHINGTON (MNI) – The following are excerpts from the summary of
the National Association of Credit Management’s Credit Manager’s Index
report for August, published Wednesday:

August CMI Shows Modest Recovery Despite a Continued Weak Service Sector

“The good news coming from the August CMI is that the index showed
some modest recovery, which was more dramatic in the manufacturing
sector than in services,” said Chris Kuehl, Ph.D., NACM economic
advisor. “If the past is any prologue, this may signal some slow
improvements in the overall economy within the next month or two. This
optimistic assessment is tempered by the fact that the service sector
remains weak and, given the size of this sector in the U.S. economy, as
a whole remains a significant drag on overall recovery.”

The index started to gain as early as October 2009, followed by the
rest of the economy, which showed some recovery by the end of the year
(5% growth for the quarter). Worsening conditions began to appear in the
CMI as early as May of this year followed by the economy as a whole in
June and July.

The improvement in the index — from 53.0 to 53.3 — stems from
small adjustments in areas that traditionally signal distress. The
number of accounts placed for collection improved, invoking a number of
suggestions as to why this is the case. Part of the reason, Kuehl noted,
is that many of the weakest creditors have now exited the system — they
have folded.

There is also some renewed patience on the part of creditors
according to survey respondents’ comments: a willingness to work with
accounts because improved business conditions may be on the horizon. The
natural preference is to get paid by a customer and keep them in the
system. Having to resort to collection usually means the relationship is
destined to deteriorate. There is now a growing sense that patience may
be rewarded should the economy stage any sort of turnaround in the
coming months.

The fact that business bankruptcies fell a bit is another example
of the change felt in the credit community. The weakest customers have
already left the system and those that remain generally look strong
enough to survive. In sales, there were some small changes in a positive
direction and a pretty impressive improvement in dollar collections.
Overall, the CMI is consistent with other observations made by
economists this week.

Some parts of the economy are doing far better than others.
Unfortunately, the down sectors are the bigger drivers in the overall
economy-housing being at the top of the list. As is indicated by looking
more closely at the CMI manufacturing numbers, the gains are being made
in the industries that have been sustaining the economy for most of the
last six months. Manufacturing has seen improved performance in sectors
related to energy development, health care and, to a lesser extent,
electronics. Even automotive has started to show a little improvement
and, if recent numbers from the rail sector are any indication, there
may be more manufacturing gains in the months to come. “Rail is often
referred to as the canary in the coal mine for the economy and carloads
have spiked in the last two months, a very good indicator of future
manufacturing activity,” said Kuehl.

The National Association of Credit Management (NACM), headquartered
in Columbia, Maryland, supports approximately 17,000 business credit and
financial professionals worldwide with premier industry services, tools
and information.

** Market News International Washington Bureau: 202-371-2121 **

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