The Credit Managers Index (CMI) from the National Association of Credit Management (NACM) for April fell to levels not seen in over a year, reflecting the sluggishness of the overall economy. The 53.3 mark is the lowest in over 16 months, the same weak levels seen in the “spring swoon” of 2012. The reading is still in expansion territory, but it is certainly heading in the wrong direction. There are some positive notes, but for the most part the data shows an economy struggling with dual issues: The favorable factors, which signal growth, are not offering encouragement, and the unfavorable factors, which indicate whether companies are in a credit crisis, are exhibiting weakness.
For the favorable factor index, the sales number was a potential bright spot, gaining slightly over last month (from 57.4 to 58.3). In general, the data over the last 12 months was relatively consistent, ranging from a high of 62 in August 2012 to a low of 56.7 in December. The bad news is that those readings of 60 and above were from the beginning of last year until the end of summer. Since then, they have slipped into the high to mid-50s. New credit applications changed very little from last month (from 56.9 to 56.5). This suggests that companies are still seeking to expand and are asking for credit, and the data is consistent with other data emerging on capital expenditure decisions since the first of the year. Most of the organizations that track capital expenditure report a steady increase, but no spectacular expansion thus far. Dollar collections also remained relatively stable (from 57.7 to 57.2). The most significant drop in favorable factors was in amount of credit extended (from 61.6 to 60.8). Although nearly a one-point decline, the more important point is that the category remains above 60, and thus far is the only factor consistently in this range. It has not dipped below 60 in over a year, indicating that plenty of companies are extending credit to creditworthy applicants. The overall favorable factor index retreated only slightly (from 58.4 to 58.2), but is one of the lower readings from the past year. The only month with a weaker performance was October, which saw a rebound back above 60 in November. Few expect to see that development this time.
“The real damage to the CMI came from the unfavorable factors,” said NACM Economist Dr. Chris Kuehl. “Many companies are now feeling the stress of the slow economy this year.”
The index of unfavorable factors fell more than a point (from 51.4 to 50), and is dangerously close to slipping into contraction territory. The index has not been this low since July 2012. Accounts placed for collection actually improved (from 49.7 to 50.1), as did disputes (from 48.3 to 48.5), which counts as stable even though the reading is below 50. On the reverse side, rejections of credit applications slipped (from 51.9 to 51.6), but not dramatically. Filings for bankruptcy also slipped (from 57.3 to 56), but remains firmly in the mid-50s. The most dramatic declines were in dollar amount beyond terms (from 51.2 to 47) and amount of customer deductions (from 49.9 to 46.8).
“The collapse in dollar amount beyond terms signals that many companies have entered the danger zone,” said Kuehl. “The sense is that many companies are now on the brink of real trouble, and if the economy continues to stall, there will be some overt business collapse in the next quarter or two.”