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July Credit Managers’ Index Hurts Vision of Positive Trend

August 02, 2019, 07:20 AM
Filed Under: Economy

The latest Credit Managers’ Index (CMI) from the National Association of Credit Management has cooled off during the summer after back-to-back gains in April and May. The CMI has now seen two straight months of declines for the first time since December and January. The July index slipped 1.6 points to 53.4, the lowest mark since January (also 53.4).

“Here we are at the mid-point of the year and the data still points to a decent growth rate for the U.S. economy,” said NACM Economist Chris Kuehl, Ph.D. “The worrisome part is that some of the more reliable future indicators, including the CMI, are starting to falter.”

Much of the despair for credit managers was in dollar collections, which dropped 3.7 points to 56.6, and is paired with the sharp slide in accounts placed for collections on the unfavorable side. Sales, new credit applications and amount of credit extended also fell, with new credit applications the only score to remain in the 60s. Overall, the combined favorables dipped from 61.4 in June to 58.6 in July, its lowest score since October 2016.

“There is simply not as much credit on offer these days,” Kuehl said referring to amount of credit extended.

While not optimistic, several of the combined unfavorables showed promise in July. Rejections of credit applications, disputes and dollar amount of customer deductions each improved this month, with disputes jumping back into expansion territory (score over 50) for the first time since November 2018. Accounts placed for collection fell into the contraction zone, which has been the norm for the past 12 months. Dollar amount beyond terms continued to decline further into contraction territory, and bankruptcy filings remained relatively unchanged. On the whole, combined unfavorables dropped to a score of 50 for the second time in four months.

The manufacturing sector was haunted by two large drop offs in dollar collections and amount of credit extended, both slipping to 54.7. Sales and new credit applications also tumbled this month, albeit at a slower pace, to have the favorable factors settle at 56.7. Accounts placed for collection and dollar amount beyond terms both returned to contraction territory, while disputes and dollar amount of customer deductions both leaped into expansion territory, the latter for the first time since September 2016. Bankruptcy filings also improved this time around, while credit application rejections dropped slightly.

“The bottom line this month is that some important warning signs are starting to flash,” Kuehl said. “The decline in dollar collections is an immediate concern. If one combines the increase in collection activity as well as slow pays, the future looks considerably less optimistic.”

The index was much of the same in the service sector—favorables dragging the scores down, and unfavorables trying to balance out the losses. Despite the declines in each of the four favorable factors, the overall index for favorables remained above 60 for the fourth straight month. Rejections of credit applications and disputes both improved, with disputes back at a score of 50. Accounts placed for collection and dollar amount beyond terms both fell further into contraction territory, while dollar amount of customer deductions entered the contraction zone. Overall, unfavorables returned to the contraction zone after back-to-back months in expansion territory.

“This was most definitely a down month and one that was led into these doldrums by the manufacturing sector,” Kuehl concluded. “The service side was more mixed, but retail doesn’t appear to be as healthy as preferred as it prepares to enter the all-important holiday period.”

For a complete breakdown of the manufacturing and service sector data and graphics, view the July 2019 report here.

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