The latest iteration of the Credit Managers Index from the National Association for Credit Management has been released and it is far more optimistic than the one last month.  There are some encouraging signs in both the manufacturing and service sectors and there has been growth in both factors deemed favorable and those referred to as unfavorable. It looks like the winter blahs have finally been reduced to some extent although it is hard to assert that weather was the sole reason for problems earlier in the year.

Analysis:   With the advance of spring and the warmer weather there have been signs that the economy is perking up right alongside the jonquils and the daffodils. It is also evident that cold and snowy weather was not the only drag on economic progress over the course of the last quarter. The improvement seen this month is not dramatic and there is some serious concern about what happens from here. There are still worries about consumer attitude and the data on business expansion remains weak. For now there is some encouragement to be taken from the favorable factors in the CMI survey but worries based on the unfavorable factors that show strains in the performance of those that owe money.

The NACM Combined CMI trended up just slightly this month – going from 55.5 to 56. In January the index was at 57.3 so there has yet to be a rebound that takes the index back to where it was even at the start of the year but the important thing is that the index is still firmly in the middle of the 50s and is starting to trend in the right direction. The overall index of favorable factors moved from 59.0 to 60.7 and that takes it back to about where it was in January when it hit 61.5. Anything above 60 is generally pretty good news. The index of unfavorable factors did not improve and that is a concern. It went from 53.2 to 52.8 and that is the worst performance since July of last year. There are some definite signs of distress in the community of those receiving credit.

The news was good for the category of “sales” as it moved from 59.1 to 61.8 – putting the readings back to levels seen at the start of the year (61.5 in January). It is always a good sign when the data is reaching above the 60 mark. The “new credit applications” reading also improved from 57.3 to 59.3 and that is a pretty sharp hike. There appears to be more desire to expand now that the winter is over and there are signs of improved business. The “dollar collections” category moved considerably and that is always a welcome development. It went from 56.4 to 58.1 and got back to levels close to what they were in January and February (58.8 and 60.9 respectively). The “amount of credit extended” went back up as well but not by that much – moving from 63.1 to 63.8.

There was less good news coming out of the unfavorable factors and these will be the ones that will attract the most attention in the next month or so. For the past several months the most consistent part of the survey was the unfavorable factor. Even as the favorable numbers slipped a little there was no real evidence of mounting distress and now there are concerns that business suffered a little more than expected in the last few months.

The “rejections of credit applications” slipped just slightly from 52.4 to 52.3 but the real problem is that this category is down at the same time that applications are up. This signals that some of those applying for credit are not in great shape. The “accounts placed for collection” slipped dramatically – going from 54.1 to 51.7 and that is also a bad sign overall. The “disputes” reading rose a bit as it shifted from 50.9 to 54.7. The “dollar amount beyond terms” reached closer to contraction than anyone is comfortable with. It slid to 50.0 from 52.4 and that is right on the edge.  The “dollar amount of customer deductions” went from 51.2 to 50.3 and that is another reading that is trending too close to contraction for comfort. The “filings for bankruptcies” shifted slightly from 58.4 to 58.1 but that is still in pretty good shape for the year. These readings would suggest that there is more than a little reversal taking place in the business community as a whole but everything is still hanging on to that expansion placement – even if only by the skin of its teeth.

The movement in the Manufacturing CMI sector was pretty healthy – all things considered. This is the sector that was likely most impacted by the winter weather (although many would argue that construction and retail really got the worst of it). The manufacturers saw lots of production interference and transportation delay. There was a sharp reduction in demand to deal with as well but there was also some additional export activity that started to show up in March and extended to some degree into April.

The overall index of favorable factors rose from 58.4 to 61.0 and that puts the reading back to where it was in January when the reading was 62.0. One of the bigger jumps was with “sales” as this factor jumped back above 60 with a reading of 61.6 compared to last month’s 58.5. This is as high as the category has been since December of last year. The “new credit applications” went from 56.1 to 58.8 and that was welcome improvement given how far it had fallen in previous months. The “dollar collections” reading went from 57.4 to 59.1 – another recovery to levels seen in January. The last of the favorable factors is “amount of credit extended” and this moved from 61.7 to 64.5. This is a category that has been pretty healthy for the whole of the last year – not once falling under the 60 mark. It has come close a month or two but has stayed strong.

The news from the unfavorable factors has not been as positive. The overall reading slipped from 53.5 to 52.7 – nothing catastrophic but certainly not trending in the desired direction. The “rejections of credit applications” shifted not at all – staying at 52.6. This category has barely budged for three months despite the fact that more applications are being submitted. The “accounts placed for collection” dropped dramatically from 56.1 to 51.5 and that has many in the sector wondering about the overall health of some in the industrial category. The “disputes” reading shifted up substantially and that is a little puzzling. It went from 50.6 to 57.2. It would seem that there is no real arguments between credit issuers and recipients – either they are in a position to pay or they aren’t. The “dollar amount beyond terms” shifted from 52.8 to 49.5 and this marks the first time this category has fallen into contraction territory since July of last year. The lack of progress this quarter has put many companies behind in their debt and it will take some robust growth to get these companies back to where they need to be. The “dollar amount of customer deductions” drooped into contraction territory as well as it went from 50.4 to 48.5. That is the first time this category has been below 50 since December of last year but it has been hovering around 50 for the majority of the last year. The “filings for bankruptcies” category stayed in pretty positive territory but is still falling a little as it went from 58.5 to 57.0

Usually we limit the CMI to the manufacturing section alone but on the next page we offer the service sector analysis as well. To get the whole CMI with all the great charts and graphs you have to visit the website for the NACM at  Look for the release of the whole CMI later this week.

Service Sector Analysis from the CMI

If there was a sector that had people worried about the impact of winter weather it was the service category as this tends to be weighted towards the retail and construction industries – both very sensitive to the vagaries of the weather. It is evident that as the spring has approached the performance in these areas has improved. The level of consumer confidence is up as compared to last year but thus far there has not been all that much happening in construction that can be construed as encouraging.

The overall index of favorable factors improved from 59.5 to 60.5 and that is along the lines of where it has been for the last few months. The “sales” category moved from 59.6 to 61.9 and that is as good as it has been since the start of the year. The “new credit applications” category improved slightly from 58.5 to 59.8 and that seems to reflect more business from retail at the same time that construction has slumped. The “dollar collections” category improved pretty dramatically as it moved from 55.4 to 57.1. The “amount of credit extended” shifted down from 64.5 to 63.1 and that also seems to be a result of reductions in the construction community.

The index of unfavorable factors stayed right where it was last month at 53.0 but that doesn’t mean there was no variation within the categories. The “rejections of credit applications” shifted from 52.2 51.9, continuing a trend that was seen in manufacturing as well. There are lots of people looking for credit but many are not worthy of receiving it at this point. The “accounts placed for collection” category shifted down from 52.2 to 51.8 and once again the “disputes” category was something of an anomaly as it improved from 51.2 to 52.1. This was not as dramatic as the category was in manufacturing but it is still bucking the overall trend. The “dollar amount beyond terms” slid as well – going from 52.0 to 50.5 but there was a little improvement in “dollar amount of customer deductions” as that reading went from 51.9 to 52.1. The “filings for bankruptcies” improved a little as it went from 58.4 to 59.2 and that is a good signal overall. There are issues but thus far these have not been quite severe enough to shove companies out of business.

About the CMI:  The Credit Managers Index is a tool developed by the National Association for Credit Management nearly ten years ago. Armada has been interpreting and analyzing the CMI for the last five and it has proven to be a very accurate and prescient survey. It is based on the same principles as the Purchasing Managers Index from the Institute for Supply Management. If you ask very direct and simple questions of the people who are in the trenches of business you get a very accurate assessment of what is happening in the economy at any given time. The credit manager is at the very start of the business process and thus the CMI is predictive.

Source:  Courtesy of Dr. Chris Kuehl,  Armada Corporate Intelligence