ARM Index Reflects Ongoing Challenges with Recoveries

Contrary to popular opinion, periods of slower economic growth do not necessarily benefit the collections industry, according to an index of economic factors impacting the accounts receivable management industry.

The Kaulkin Ginsberg Index (KGI) increased a modest 1 percent in the second quarter of 2008, but still remains down 10 percent from the same time last year. The KGI is compiled by leading ARM advisory firm Kaulkin Ginsberg.

“Given the recovery data we’ve seen over the past few months, we shouldn’t read much into the slight increase this quarter,” said Paul Legrady, a Director of Kaulkin Ginsberg. “By all accounts, recoveries remain challenging, and as the economy continues to slow through the second half of this year, this trend should continue.”

The index is comprised of seven economic measures that directly impact the ARM industry: the unemployment rate, the Federal funds rate, charge-off rate among creditors, outstanding consumer credit, total market capitalization of publicly traded ARM firms, bankruptcy filings and the consumer price index.

Although four of the measure saw significant decreases in the quarter, the index was buoyed by a sharp increase in the charge-off rate for debt among major creditors. The index assumes that as charge-offs increase, more business is available to companies in the accounts receivable management industry.

But some of the negative drags on the index are picking up steam. “We expect the KGI to deteriorate more in the third quarter,” said Legrady. He noted that the unemployment rate in June was 5.5 percent, which was included in the index. But over the past two months, the unemployment rate has surged to 6.1 percent.

Kaulkin Ginsberg is the parent company of Kaulkin Media, publishers of insideARM.com.