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Drop in Bankruptcy Filings Leads Gains in April Data

May 6, 2010
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COLUMBIA, MD -The movement this month in the Credit Managers’ Index, issued by the National Association of Credit Management (NACM), was not spectacular, but was steady, which is good news in the context of the current economy. In the last few months, the bulk of the movement in the index was in indicators like new sales and some expansion in the areas of credit. Now the improvement is appearing in a reduction of negative factors, creating a pattern that alternates emphasis on positive and negative factors. Last month’s big CMI news was that sales jumped and data coming now from other sectors of the economy is reinforcing that news. Retail sales have seen two improved months in a row and the latest durable goods data showed some solid gains in everything but the aircraft industry.

The biggest gains this month took place in two factors: dollar amount of customer deductions and filings for bankruptcies. The majority of the factors-both positive and negative-have been stable, which is corresponding to activity taking place in the economy overall. “In the last two months, the trends in the recovery have been consistent; the inventory build has been completed for the most part and now there is a need for the consumer to get engaged,” says Chris Kuehl, Ph.D., NACM economic analyst. “In that same period, the consumer has started to show some signs of life as indicated in the Conference Board’s latest consumer confidence index.”

The best news provided by the reduction in bankruptcy activity is that there appears to be a much needed lull in business failure. “This is partly attributable to the fact that the weakest companies have already been forced out, but there is also a strong trend, suggesting companies are starting to get enough cash flow to survive,” says Kuehl, “but there is still a challenge in terms of getting financing, which is reflected in the CMI data in amount of credit extended.” There was no change in the figures from last month and relatively little change from the last several months and the overall rank in this category is still historically low.

The economic data overall is pointing to a period of watch and wait. The signs have been good for most of the year and there will doubtlessly be gains in second quarter GDP. The real breakthrough growth has only just started to manifest, however, and there are many barriers remaining. The unemployment rate has not slipped and the important sectors in the overall economy have only started to show some secure recovery. “With all the challenges, the best news is that the consumer is getting steadily more confident and that soon translates into more solid growth in both the manufacturing and service sectors,” says Kuehl.

The full report is available at http://web.nacm.org/cmi/cmi.asp.

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