"If you are a big fan of volatility, you will like this month's Credit Managers' Index (CMI)," said Chris Kuehl, Ph.D., the National Association of Credit Management's (NACM) economic advisor. "The positive trends that we saw in last month's manufacturing data were replaced by some negative trends, while the service sector that looked so stressed in August seemed to come back to life in September. If just the CMI numbers were considered, one could conclude there really wasn't much going on and that everything was pretty stable. After all, the combined CMI reading went from 53.3 to 53.8. The real story is that this truly dramatic activity reversed the pattern of the previous month."
This pattern reflected the general confusion in the greater economy. Employment data managed to improve week over week at the same time that durable goods orders declined. Then, within the goods category itself, the gains in machinery manufacturing were offset by big drops in the aerospace sector. Some of this volatility can be attributed to the height of election season and Congress being in high gear-at least as far as rhetoric is concerned-and these various moves and countermoves influence business decision making from one week to another; meaning industries are delaying usual decisions as they try to determine if any of these changes will affect them.
Economists are starting to describe this recovery as a "growth recession," a term that could only be hatched by the dismal sciences Kuehl said. It refers to the fact that the recession essentially ended from a technical point of view in the summer of 2009. That was the conclusion of the National Bureau of Economic Research (NBER) with its examination of a host of factors alongside the traditional measures of GDP growth or decline. In fact, the NBER assessment of the economy held that the recession really began in 2007. What makes these assessments by the semi-official arbiter of all things recessionary interesting is they correspond with observations one could make by looking at the CMI data of the past few years.
By looking at the year-over-year numbers (see the Manufacturing and Service Index Levels graph below), it is apparent there was solid growth taking place by September 2009 and this growth carried forward through the rest of the year. Go back a few more months and look at the CMI numbers from the summer, and it is apparent that a turnaround was underway by May and June 2009-exactly the moment NBER determined the recession was coming to an end.
More interesting yet is the CMI data from 2007 when the rest of the country was still enjoying the boom. There were already some signs of trouble within the data: more disputes were appearing, there was more dollar exposure and there were more signals that sales were eroding. There was even a harbinger of things to come, as far as credit was concerned, as there was a reduction in both credit applications and applications granted. The numbers in 2007 were still solid and there was still growth but troubles were on the horizon.
What we are seeing now is that the economy was in better shape at the beginning of 2010 than it is now. In January, sales numbers were in the 60s and stayed there through May before declining through the summer. The future looks better, but only marginally. The slow activity underway during the last few months should better reflect the pace of progress to be expected in the months ahead. "The weakness in credit extension is going to continue to be a major factor and that will continue to affect sales as well. The negative issues have not become markedly worse, but they continue to be bigger concerns than they were earlier in the year, especially for the manufacturing segment," said Kuehl.
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