WASHINGTON (MNI) – The following is the text of the National
Association of Credit Management’s monthly Credit Manager’s Index,
published Friday:

All indicators in NACM’s economic report for March 2012 break into
expansion territory for first time in more than a year

Columbia, Maryland: March 30, 2012 – The Credit Managers’ Index
(CMI) for March is trending in a positive direction and is yet more
reinforcement for the notion that the economy is doing better and that
the recovery may be real. The combined index is now at the highest level
seen in well over a year, even if the 56.2 reading is lackluster
compared to the boom years of the last decade that featured index
numbers well into the mid-60s and occasionally in the 70s.

The good news this month stems from an improvement in unfavorable
factors, while favorable factors held their own. Sales, dollar
collections and amount of credit extended all dipped a little, but
stayed above 60. In fact, all favorable factors remained above 60. The
more significant shifts took place in unfavorable factors. For the first
time in more than a year, all unfavorable factors were over 50 and the
combined total was a solid 52.

The biggest jumps took place in the more sensitive
indicators-accounts placed for collection moved from 50.9 to 52 and
disputes moved from 49.7 to 50.9. Disputes have not been out of the 40s
since July of last year and even that was only for one month. Dollar
amount of customer deductions went from 48.5 to 51.1, which is only the
third time it has been above 50 in the last year. Overall, the index of
unfavorable factors reached the highest level in over a year. In the
last four months, the numbers have been rising from the contractionary
levels set last year. In November the index broke 50 by the barest of
margins. Since then, the index has crept up in increments-50.4 in
December, 50.3 in January, 51.1 in February and 52 in March.

What does all this really mean? One clue to these improvements is
that bankruptcies have started to fall. The latest number is as strong
as it has been in months and is a signal that most of the weakest
companies have gone by the wayside, providing new opportunities for
companies that survived the recession.

“There is a dirty little secret among economists — some parts of a
recession are helpful,” said Chris Kuehl, PhD, economist for the
National Association of Credit Management (NACM). “The fact is that
during a boom period, there are many companies surviving and even
thriving in spite of themselves. They are not all that well run and
succeed mostly because everybody is succeeding in the boom.”

When conditions start to deteriorate these companies resort to
tactics designed to boost cash flow at the expense of long-term profit.
They become the low-cost providers and undercut their competitors, but
usually in an unsustainable way. Eventually the race to the bottom ends
and these competitors begin to fail and exit the market, Kuehl said.
This is the point when the stronger competitors are able to finally
reassert themselves and get the pricing they need to succeed long term.

“At about this time, one should be thinking that all of this is
going to lead somewhere that may not be all that good for the overall
economy,” said Kuehl. “One would be correct. The next phase in the
progression involves a boost in the inflation threat.” Kuehl explained
that up to this point, the pressure of the recession and the plethora of
low-cost competitors have combined with a consumer who doesn’t have much
tolerance for higher prices.

With the cost cutters going bankrupt and the consumer feeling a
little more flush, the remaining companies can now start to hike prices.
This is certainly good for their bottom line, but will mean that prices
will start to rise and that fuels inflation. The current commodity-led
increase is enough of a threat, but once the general price situation
shifts, the real inflation threat develops as this will stimulate wage
hikes as well. The rise in inflation is a sign that the economy as a
whole is on a real rebound and now the emphasis will be on figuring out
how to restrain that inflation surge without sending the economy back
into recession.

** MNI Washington Bureau: 202-371-2121 **

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