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Decline in Credit App Rejections Parallels Rise in Consumer Confidence

NationalMortgageProfessional.com
Jun 04, 2013

The Credit Managers’ Index (CMI) from the National Association of Credit Management (NACM) for May leapt over two percentage points, from 53.3 to 55.6, to reach a level not recorded since August 2012. The improvement becomes more convincing upon review of the data, and is supported by better consumer confidence numbers and the general enthusiasm greeting the latest housing data. The index of favorable factors made the transition into the 60s for the first time since November of last year, and is at the highest point in well over a year and a half at 61.6. This was a major breakthrough month and signals the potential for solid gains in subsequent months. Each of the four favorable factors staged recoveries. Sales jumped from 58.3 to 63, which is much higher than it has been in over a year. New credit applications improved from 56.5 to just under the 60 mark at 59.2, another level not seen in a year. Dollar collections jumped as well, from 57.2 to 59.2, a number last seen in December. Finally, amount of credit extended jumped much further into the 60s, from 60.8 to 65. Not since before the recession has this number been so high. “If the willingness to extend credit is surging at this pace, there will be some lofty expectations for the months to come,” said NACM Economist Chris Kuehl, PhD. “There would be good reason to question data this optimistic except for the good news percolating in the ranks of the consumer sector, and it is reasonable to assume that this CMI number reflects some of that.” The data from the unfavorable factors is also encouraging and further reinforces the notion that a real rebound is underway. The jump was not quite as spectacular as with the favorable factors, but if the past is prologue there will likely be a bigger response in next month’s data. The unfavorable factor index rose above last month’s neutral 50 reading to 51.6. Some of its categories experienced a little reversal, but were offset by gains in other segments. Two factors, disputes and filings for bankruptcies, didn’t move at all and remained at 48.5 and 56, respectively. Rejections of credit applications fell from 51.6 to 50.8 but, anecdotally, it appears there are far more applications to deal with, which may have affected rejection rates. Accounts placed for collection crept up from 50.1 to 50.6, and dollar amount of customer deductions improved by a larger degree, but remains in the 40s, from 46.8 to 49.6. Dollar amount beyond terms made the most solid gain, jumping out of the 40s from 47 to 54.1, marking the highest level seen in well over two years. “This factor had the most impact, and if there is to be progress, this would be a good place to see it,” said Kuehl. “Creditors are clearly getting caught up in a variety of economic sectors. The data from this month’s CMI looks especially positive, and it would be tempting to start trotting out all kinds of caveats and warnings in order to not be swayed by the stunning improvements. But the CMI may simply be presaging much better days ahead.”
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