COLUMBIA, MD — The December Credit Managers' Index remained above the 50 mark indicating growth, rising 60 basis points to 52.9.

Preliminary retail numbers showed a gain of around 4.5% over last year, while increases were seen in collections (in dollars) credit extended, factors that boosted the index.

“This is hardly the kind of advance that provokes celebration, but given the gloomy assessments made about the 2009 holiday season, the gain is certainly preferable to what had been anticipated,” said Chris Kuehl, economist for the National Association of Credit Management. The economy remains weak, but headed in the right direction, the organization said.

For December, the indicators that showed the least movement included sales and new credit applications. “This is to be expected and is consistent with December readings in past years,” said Kuehl. “This is the period in which most manufacturers are in semi-hibernation unless the retail community is frantically trying to bolster inventory. That was not the strategy employed by retail this year; stores held the line on inventory and shoppers eventually caved and bought what was available.”

The improvements in collections and credit bode well for the coming year, NACM said.

Modest declines were seen in disputes and rejected credit applications, while bankruptcy filings deteriorated significantly. “There have been more bankruptcies and that poses some long-term problems. The growth of bankruptcy activity is not unexpected at this point in a recession, but until these are worked through, there will be hesitation in the market to extend credit to any but the most healthy companies,” Kuehl said. “As the economy rebounds, the companies that have been struggling to survive will start to encounter more aggressive competition, which is often the straw that breaks the back of these weakened companies.”

The slow thaw in the credit markets is still taking place and there are signs of expansion in both the manufacturing and service sectors. There has been no sign of explosive growth thus far, but that is consistent with most of the other assessments on the economy. The improvement in 2010 looks more feasible, but there are still no fireworks in the immediate future, NACM said.

The manufacturing sector slipped into contraction territory for the first time since January 2009. Sales declined a little from November, but there were sharp increases in the amount of dollar collection and the level of additional credit extended. The reduction in sales activity is to be expected in what is the slowest period of the year for the manufacturing community, but the data were seen as good news as more manufacturers are catching up on debt and preparing for what may lie ahead. As was noted in the last two months of the index, there is a familiar process underway and the fact that this process has continued to advance is good news, NACM said.

“The December period is usually pretty challenging to [manufacturers], and December’s decline was much less drastic than that of a year ago,” said Kuehl, “but the fact remains that manufacturing ended its 10-month run of positive growth. It is likely that the new year will bring some progress again, but this dip in the index demonstrates that there are still problems in manufacturing that will take some time to correct.”

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