The holiday season has been a good one in terms of economic growth, at least for the retail community. That became pretty obvious in this month’s Credit Managers’ Index (CMI). After seeing a pretty meager performance in the service sector since the middle of summer, this month’s gains were impressive and suggest that most of the glowing reports from retailers were accurate. The story on the manufacturing side was not so upbeat, but that is not unusual this time of year. Manufacturers do not generally see big gains in the fourth quarter. The service side of the economy is another story, especially that part connected to the consumer and the holiday season.
Overall, the gains were solid as the December CMI went from 53.5 to 54.4, the highest reading since May, but not as impressive as the index reading a year ago. In December 2010, the CMI reached 55.8 and there was some talk of a breakout year in 2011. That did not come to pass and the index started to slump by March. By the end of the summer there was concern that CMI readings would slip below growth and end up in the 40s again. That also did not take place, and by the end of this year, gains pushed the index back into the mid-50s.
“Throughout the year, the manufacturing and service sectors exchanged positions with one another, and it was a rare month when both sectors were on the same track,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). “December was no exception. The service sector grew much faster than manufacturing due to the strength of the retail segments of the index.”
In general, the combined level of sales started to grow again and jumped back above 60 after having fallen to 58.2 in November. The other piece of good news was that dollar collections gained considerably, from 56.9 to 61.4. This kind of gain is often seen this time of year as retailers have more cash to work with and many companies are trying to get their books in order. The gains in favorable factors, which moved from 58.8 to 60.5, would have been greater were it not for the decline in new credit applications. This is also somewhat more common at the end of the retail season, and the offsetting good news is that the amount of credit extended moved from 62.4 to 64.7.
Unfavorable factor numbers were not as positive, although the majority of the movement was insignificant. The problem is that most of these index readings are still in the 40s. Rejection of credit applications is still in the contraction zone at 49.5. The index for accounts placed for collection moved into expansion territory, but just barely, rising from 49.5 to an even 50. Only the bankruptcy filing factor is solidly in expansion territory with a reading of 56, but that is down from the previous month’s reading of 56.7. “In general it can be said that many companies remain in distress, and this doesn’t bode well for the coming months when there will be no boost from holiday spending,” said Kuehl.
The index of unfavorable factors did stay in the expansion zone, but only by the narrowest of margins—expanding from 50.1 to 50.4. “This is certainly a better trend than the one noted some months ago, but it has been more than a year since this index has been above 53,” said Kuehl. “The fact remains that many businesses are still struggling with debt and cash flow. The retail sector did very well in 2011, but the gains were anything but universal. As the data starts to come out, it will be evident that some companies did not manage to turn things around this year. It has already been announced that Sears/K-Mart did poorly compared to their competitors and will soon be closing over 100 stores. There will be more such announcements in the weeks to come as retailers finish computing this year’s sales season. The most persistent concern is that few companies came out of 2011 with enough momentum to carry them very far into the coming year.”
The online CMI report for December 2011 contains the full commentary, complete with tables and graphs. CMI archives may also be viewed online via the attached link.