Credit unavailability was the second most frequently cited concern of mid-sized manufacturers, just below customer demand concerns, in a February survey from Prime Advantage. Manufacturers may have been able to breathe a little easier last month as the National Association of Credit Management's (NACM) report of credit conditions showed a second month of improvement in March.

Loosening credit may help spur consumers to spend again and increase the demand for manufactured goods. In fact, durable goods orders jumped 3.4 percent in February and defied economists' expectations of a 2 percent drop in orders.

"The manufacturing sector has been taking some severe hits over the last few months, and there has only lately been much to get excited about," said NACM economist Chris Kuehl. "The fact that durable goods orders rose by 3.4 percent took many people by surprise, but looking at the CMI [credit manager's index] data suggests that there was some improvement in the credit position of manufacturers beginning in February and extending into March."

The NACM's manufacturing-specific credit manager's index expanded to 43.7 last month from 42.8 in February and a 40.4 low in January. According to the NACM report, this data bolsters "the notion that the improved durable goods orders may not be a one-time fluke."

Overall, the CMI rose 0.5 percent in March, after a 2.5 percent increase in February. The index reading of 43 last month was still below 50, indicating markets are tight, but it does show that conditions are moving towards loosening, Purchasing notes.

Additionally, the index of favorable factors showed the biggest gains, going from 42.3 in February to 43.1 in March. Favorable categories with marked improvements included sales (35.2 in March vs. 34.1 in February), dollar collections (48.4 from 47.1) and amount of credit extended (44.6 from 43.2). Only new applications showed a decline to 44.3 last month.

This pushed the overall CMI number to a level not seen since November last year, breaking "a lengthy string of negative readings and matches up well with other data that has recently emerged — a slight reversal of the downward trend in manufacturing, a small boost in retail sales and a sharp spike in durable goods orders" the NACM report said.

On the negative side, however, bankruptcies overall rose to 40.5 in March from 38.4 in February.

The Automated Access to Court Electronic Records, which tracks bankruptcy filings, reports similar findings: In March, the number of businesses seeking bankruptcy protection hit its highest level in more than two years, as the recession sends more companies into financial crisis.

"The 7,843 commercial bankruptcy filings last month represent a 23 percent jump from the 6,365 filings in February," the Wall Street Journal (subscription required) reports of the findings. "It's also the highest monthly total of business filings since at least 2006."

The data also suggest that "in the first quarter of this year, 20,251 businesses sought either Chapter 7 or Chapter 11 protection — a 52 percent increase over the 13,291 business bankruptcy filings during the same period last year."

Said Kuehl: "[B]ankruptcies often surge as stronger competitors begin to put pressure on weaker companies. But if new credit applications and the amount of credit extended show signs of progress, the economy will respond relatively quickly."

Using their data and other economic benchmarks, the NACM cautiously suggests there may be a bottom in sight for this recession. "The key issue from this point is how fast the rebound may be," Kuehl noted. "Given that the most important issue in this recession has been access to credit, it is encouraging to note that the index is showing a pretty significant increase in credit extension, the best numbers since December 2008."

Even parts of the struggling auto industry are starting to feel some optimism despite a continuing sales slump (3rd item). Pointing to the inability of many consumers to obtain car loans for their January sales woes, and with some saying tight credit cost them 20 percent of their sales, automakers were able finish stronger than expected in March as credit began to loosen, the Associated Press reports.

General Motors Corp.'s financial arm, GMAC Financial Services, added April 1 that it would lower minimum credit score requirements for auto loans. And although Americans bought only 857,735 new vehicles in March (compared with 1.36 million in March 2008), "sales jumped nearly 25 percent from February, beating the typical increase of about 20 percent and increasing optimism that the worst may be over for an industry battered by the global recession and bad publicity about GM and Chrysler's financial woes," the Associated Press concludes.

"Maybe we'll get — imagine that — some momentum going," Mike DiGiovanni, executive director of global market and industry analysis for GM, told the Associated Press.

The NACM suggests keeping a close eye on favorable credit factors in the coming months, along with other economic benchmarks, to see if the economy is truly on the mend.

Resources

Credit Managers' Index Report for March 2009
National Association of Credit Management, April 1, 2009

Signs Show Credit May be Loosening
by Dave Hannon
Purchasing, April 1, 2009

Top Concerns of Midsized Manufacturing CFOs and Key Differences from Large Companies
Prime Advantage, Feb. 27, 2009

Bankruptcies Rise Sharply
by Jacqueline Palank
The Wall Street Journal, April 7, 2009

Glimmer of Hope in March's Steep Auto Sales Drop for Auto Industry
by Tom Krishner
The Associated Press, April 1, 2009

U.S. Light Vehicle Retail Sales - March 2009
Autodata Corp.