Risk iStock_000016809464SmallAnalysis:  The readings of the Credit Managers Index for the past month indicate that there was weakness in a variety of areas, not just some problem or issue in a select few and that would seem to suggest that the slowdown is more universal and not something that can be attributed to one or two specific situations. The overall index of favorable factors stumbled from 61.5 to 59.4 and the overall index of unfavorable factors slipped as well – from 54.5 to 53.1.

Within these broader measures there were declines pretty much across the board. Given that the slowing was broadly represented there is a sense that something universal has been affecting the economy and if we combine the CMI data with the other measures that have been emerging that is a consistent message. This may all end up being related to the bad weather this winter or it could be deeper and connected to continued weakness in the consumer and the business reactions to this consistent caution.

  • The “sales” category slipped from 61.5 to 59.4 and that pulled this index back to where it was in December and was only the second time the index was below 60 over the last eleven months.
  • The “new credit applications” category barely moved as it went from 58.2 to 58.1 but that is tracking in the wrong direction.
  • The “dollar collections” reading slipped from 60.9 to 58.8 and that erased the gains made last month. The “amount of credit extended” went from 65.4 to 61.4 and that may be the most serious blow. This category remains above 60 and that is good but this is the lowest point reached since April of last year and suggests that credit is tighter than it has been in a while.
  • The “rejections of credit applications” went from 54.6 to 52.3, erasing the gains of the last two months.
  • The “accounts placed for collection” reading slipped from 55.2 to 54.6 and that is a relatively minor adjustment that leaves this category about where it has been for the last several months.
  • The “disputes” category went from 52.2 to 51.9 and “dollar amount beyond terms” went from 52.8 to 51.1. These are not huge drops but the trend is not in the preferred direction and that creates some concern about what happens in the next few months.
  • The “dollar amount of customer deductions” went from 51.6 to 50.4 – again a relatively minor decline that leaves the category in roughly the same range as it has been for most of the last six months. The “filings for bankruptcies” category went from 60.5 to 58.5 and that is a steeper decline than had been expected as these readings have not been this low since August of 2013.

The sense is that slow growth has started to have an impact on the survival of business and some of that is to be expected – especially in the retail sector. It was noted at the end of last year that the holiday season was not all that robust and for companies that rely on those last months of the year this can be the difference between staying open another year and giving up. There has been a growing population of businesses that are not now positioned for survival as the economy continues to slog along.

The most mysterious sector right now is manufacturing as the readings have been volatile and unpredictable. There has been much conjecture regarding the impact of the winter and analysts are mixed. Some are blaming the storms and the bitter cold for a general slowdown in all aspects of the economy and by implication this suggests that the economy will improve when the weather does. The counter assertion is that there are deeper issues and recovery will not be as simple as turning the calendar pages.

The overall favorable index slipped pretty dramatically from 62.0 to 58.1 and much of that reduction seems connected to a few of the sub-readings. The category of sales slipped slightly from 59.6 to 57.9 but the really bad news is that this takes the reading to lows not seen since March of last year. This seems to be more than a weather related issue. The “new credit applications” also dropped by a similar degree – moving from 59.5 to 57.7 while the “dollar collections’ category really took a major hit. This reading went from 62.7 down to 56.4 and that is a profound retreat that is as low as it has been for almost a year. The “amount of credit extended” slipped badly as well but stayed above 60 by the slimmest of margins as it went from 66.4 to 60.4. This reading has not been this low since April of last year. If these readings continue to track this low it essentially means that manufacturing has given up almost a solid year of gains.

The unfavorable category as a whole moved from 54.4 to 54.1 and that is perhaps the best news in the CMI this month as it would suggest that there is still no real distress in the sector despite the bad news as far as growth is concerned. Most of the sub-categories showed relatively little movement but most of it was negative. The “rejections of credit applications” slipped from 54.4 to 52.8 but “accounts placed for collection” actually improved from 55.7 to 59.9 and that suggests that there is not a lot of financial distress showing up in many of the companies that make up the bulk of the manufacturing community. The “disputes” category also improved a little as it went from 51.0 to 51.6 and that also reinforces the notion that overall financial distress has not set in. The “dollar amount beyond terms” slipped from 53.2 to 51.7 and the “dollar amount of customer deductions” went from 51.8 to 50.4 – not a big drop to be sure but not trending in the direction one would prefer. Perhaps the biggest fall was in “filings for bankruptcies” as it slipped out of the 60s by shifting from 60.5 to 58.6. Right now the signs of real distress are not evident but if there is continued slowing this situation could change in a hurry.

The complete report also includes a section on the services sector and in the CMI data that is mostly retail, construction and health care with some influence from the professional services as well.

About the CMI:  The report as prepared by the staff at NACM and assessed by Armada is based on the same structure as the Purchasing Managers Index and over the last ten years the CMI has almost always predicted the PMI by about a month.  Given that the credit manager generally has to do their job before the purchasing manager can do theirs this is not really all that surprising. Take a look at the whole report next week at www.nacm.org and discover all the other interesting data collected by the organization.

Dr-Chris-KuehlCourtesy Dr. Chris Kuehl, Armada Corporate Intelligence