U.S. Firms Extend Credit at ‘Ballistic’ Pace in Bet on a Recovery

(Bloomberg) -- A gauge of U.S. firms extending credit climbed in December to the highest level in almost 18 years, signaling a strong bet on the economy's prospects and heavy investment in automation.

A National Association of Credit Management index, which tracks credit extended to both the manufacturing and services sectors, increased to 72.3 in December, the highest reading since 2004. The gauge has been mostly rising since hitting an all-time low of 41.6 in April 2020.

Activity has especially ramped up since July as manufacturers play catch-up after forgoing big purchases of new machinery earlier in the pandemic, said Chris Kuehl, an economic analyst for the NACM. Companies are now investing heavily in equipment and inventory in anticipation of a strong economic recovery this year, as well as automation to combat labor shortages and rising wages, he said.

“They went ballistic in the last two to three months,” said Kuehl, who's also a managing director at Armada Corporate Intelligence. “Credit managers want to make these deals happen.”

While companies in need of financing can generally get cheaper rates by going to a bank, they often turn to credit managers at the firms they're buying from that are more willing to negotiate timing and terms for their customers, Kuehl said. That's especially popular for international businesses who frequently want trade credit, he said.

A report earlier Thursday showed orders for durable goods at U.S. factories rose 2.6% in November, the most since May. The Federal Reserve's latest measure of business equipment production remains above the pre-pandemic level seen in February 2020.

The credit managers data don't specify what kind of investments are being made, but Kuehl said agricultural companies are leading the charge as well as health care. Looking forward, the pace should stabilize as interest rates rise, Kuehl said, adding that big investments tend to come in waves as the equipment lasts several years.