NACM’s Credit Managers’ Index ends year on weak note

Jan. 2 The movement in December’s economic report from the National Association of Credit Management ended the year on a disappointing note, creating the sense that economic momentum has stalled. All eyes are on January in the hopes that the slide doesn’t deepen.

While other economic indicators remained strong, the December report of the Credit Managers’ Index (CMI)  from the National Association of Credit Management (NACM) shows several categories with lows not seen since March 2014. Overall, the combined numbers for manufacturing and service sectors fell to 54.9, compared with 55.8 in November. “It would have been nice to end the year on a high note,” said Chris Kuehl, PhD, NACM economist. Although durable goods orders were robust, employment numbers solid and retail sales better than many had expected, CMI data ended the year by falling over two consecutive months to its worst numbers since the start of 2014. “That is a real worry,” Kuehl said.

Although the combined Index of Favorable Factors slipped from 61.2 to 60.5—the lowest result since March—the combined data is still comfortably high. The Sales category dropped from 62.7 to 61.4—another low as compared with previous months. New Credit Applications improved, however, as it shifted from 58.1 to 59.2. Such a shift can serve as a mixed message, given there was a slight increase in the number of credit applications that were rejected. During times of stress, companies that are not credit worthy may attempt to get some credit lifelines, Kuehl said. The reading for Dollar Collections saw a significant drop, from 60.3 to 56.6—another low not seen since March. Amount of Credit Extended rose a bit from 63.7 to 64.6, which suggests that there are bigger credit offerings being made to some of the larger companies. The good news is that most of the readings were over 60 and that continues to be a positive development.

Most of the CMI’s bad news stems from the Index of Unfavorable Factors, helping to make 2015 a mystery to predict. The combined index dropped from 52.2 to 51.1, toward the low side of that reading over the course of the past year and close to contraction levels (below 50). Rejections of Credit Applications dropped, but only slightly from 51.7 to 51.5. Bigger credit offerings to a select few clients and more applications from less than creditworthy companies seem to be the pattern of late. Accounts Placed for Collection also slipped a little from 51.8 to 51.1. The bigger issue, however, is that several readings are so close to the breakpoint between contraction and expansion. The category of Disputes took fell to 48.5, inside the contraction zone and at its lowest point in well over two years. This signals considerable tension between those that issue credit and those that receive it.  Similarly, Dollar Amount Beyond Terms moved from 52.3 to 48.7—its lowest point since September. Dollar Amount of Customer Deductions also dropped from 49.7 to 48.5. “That is a trend that nobody wants to see extended,” Kuehl said. And Filings for Bankruptcies actually improved from 56.5 to 58.5. “That is a decent sign of some progress as it suggests that the issues that have been affecting the creditors have not yet reached the point that companies are crashing and burning,” he noted.

The data reflect two major problems: The reason for the weak numbers is not clear, and data for the unfavorable categories indicates weakness in company financials, Kuehl said. Given that some of the other national data has been improving, it begs the question: why isn’t credit data pointing in the same direction?  “At first blush, it appears that there have been stressors all year and that some companies have been able to cope better than others,” Kuehl said. “There were companies that were weak to begin with, and there has not been enough growth to pull these companies out of it.”