The news for the end of the year was better than anticipated, matching the news coming from the retail sector in general. The gains in the overall Credit Managers' Index (CMI) were impressive, but of more significance is the improvement in some key sub-sectors. For the past four to five months there were pretty steady gains in areas like sales and new credit applications-the sectors that usually herald some improvement in business conditions. But, until this month, the gains had not reached levels set earlier in the year. It now looks like there is some momentum heading into 2011; as the combined index now sits at 55.8.

Sales reached the highest point of the last 12 months, getting back to levels last seen in April when it was at 65.7. It now stands at 65.9, a solid improvement on the 61.9 registered in November. "Sales numbers have been rising in both manufacturing and service sectors and that is promising for the coming quarter," said Chris Kuehl, PhD, National Association of Credit Management (NACM) economic advisor and director of Armada Corporate Intelligence. "The improvement in new credit applications is more significant yet, given the impact it has on future growth. For the first time in well over three years, it broke 60. There is certainly reason for future optimism as this factor was only registering 54 to 54.8 as late as September. More and more businesses are now anticipating expansion and are seeking credit in order to meet that expected demand."


The gains in credit extended and dollar collections were more modest, but both categories are now above 60 as well, pushing the favorable factor index to a relatively robust 62.1. The last time this occurred was back in March and April when there was a similar anticipation of growth in the overall economy.

That is the good news. The not-so-good news is found in the index of unfavorable factors where there are trouble spots showing up. There were more rejections of credit applications, but some of that was expected with the overall increase in credit applications. The more troublesome aspect of these rejections indicates far more unqualified applicants than in the past. "This is the point in an economic recovery that provokes some desperation within the business community," said Kuehl. "As key competitors start moving to capture more market share, their rivals have no choice but to try to keep pace, forcing companies to seek expansion regardless of whether they can really afford it."

Several other unfavorable factors also showed weakness. There were more disputes, more accounts placed for collection and more filings for bankruptcy. The data suggest that another series of industry shakeouts are on the way. This is the period when weak companies that have been hanging on in anticipation of increased demand will either get the business boost they need to survive or will discover that the rescue is too late. Overall, the combined index of unfavorable factors remained steady compared to last month, but it's expected that these numbers will worsen in the months to come-unless and until there is a more pronounced recovery in the economy.

The data support reports from the financial press in the last few months. A period of consolidation is likely in many industries as 2011 progresses. There are many companies that barely made it through the last year, hanging on for the opportunity to participate in the economic recovery. If that rebound is not manifested soon, they will not have the credit needed to survive and there will be a period of consolidation. There is already a great deal of action in the merger and acquisition world, mostly involving companies running out of options. "The CMI data show reason to be upbeat about the future, but there is also reason to be worried about some companies," said Kuehl. "It has become a matter of winners and losers at this stage, as the competition focuses on who is positioned to gain in the next quarter or two."

Click here to view the full report, complete with tables and graphs, along with CMI archives.

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