They see `a slight slowdown' but no signal for recession

Credit managers gauge from the flow of bill payments

June 15, 2000|By Eileen Ambrose and Rona Kobell | Eileen Ambrose and Rona Kobell,SUN STAFF

Credit managers are among the first to see the signs of trouble in the economy, and as thousands of them descend on Baltimore this week, their forecast is much the same:

The economy is slowing slightly, but a recession doesn't appear on the horizon.

Their observations reflect the findings of a Conference Board report earlier this week that said the 10-year U.S. economic expansion, the longest in the country's history, has peaked.

"We do see a slight slowdown, just a blip on the radar," said Paul Mignini, president of the National Association of Credit Management.

The Columbia-based association, with more than 31,000 members worldwide, is holding its annual conference at the Baltimore Convention Center this week. Attending are more than 2,300 credit managers, whose job it is to decide whether their manufacturing or service companies should extend credit to business customers. The credit managers are the ones that often end up chasing unpaid bills.

That position puts them on the front line of knowing whether businesses are facing lower sales or are being hurt by rising interest rates.

Credit managers who have been in the business for years and have lived through difficult economic times said the signs of an impending recession include fewer demands for credit, heavy debt, shrinking cash reserves and aggressive tightening by the Federal Reserve.

"How we keep a pulse on the economy is when the [companies start] slowing their payments," Mignini said. Instead of paying bills in 30 days, some companies postpone payments until 45 or 60 days, in a sense getting an interest-free loan, he said.

Usually, slow payments begin a year or two before a recession, but maybe the next recession won't have such obvious warning, said Terry Callahan, vice president of the Credit Research Foundation, the association's research arm.

"Things will happen much faster this time when the bubble pops," Callahan predicted. With so many start-up companies that have yet to build loyalty with a supplier, slow payments won't be tolerated for long, he said.

Demands for payment will trigger business failures, lead to unemployment and other problems that will ripple across the broader economy, he predicted.

Robert M. Healy, who spent 24 years as a credit manager for the former Union Oil Co. of California, remembers well the days of double-digit interest rates and the energy crisis of the 1970s.

The economy is nowhere near such dire straits, said Healy, 68, who now owns his own credit consulting company in Schaumburg, Ill. But credit managers are indicating to him that their billings are down.

"It's a little peek under the door," said Healy, who added that he's worried about rising gasoline prices in the Midwest and whether the Fed is tightening the screws too much on the economy.

The central bank has raised interest rates six times in the past year, and some predict that it will do so again later this month.

Bill Herring, too, is watching interest rates. As first vice president of the Bank of Nashville, he specializes in checking construction companies' credit before making loans.

He noted that the increases in the prime rate and mortgage rates have dampened borrowing, and the bank is taking a closer look at construction borrowers for signs of trouble.

"In times like this, you do see a tightening of credit," he said.

Of course, some credit managers see no softening of the economy for their industry. T. Chris Hooker, senior area credit manager for the Gates Rubber Co. in Denver, said his company that makes belts and hoses has little competition and enjoys steady growth. "Everyone is still buying cars and buying the parts for those cars," he said.

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