For the last month or so, there has been a lot to worry about and this has stripped a good bit of confidence from those that assess the economy on a regular basis. Not all the news is bad, however. There have been some palpable improvements in the labor market; and there is still no sign of an inflation surge, but there are also many reports that cause concern. We can now add the Credit Managers’ Index to that list as the latest readings are downright depressing, given where it appeared it might be a few months ago. The decline in momentum is unexpected, but not hard to understand with the recent arrival of some serious economic headwinds.

The combined reading for the overall CMI plunged to a level not seen in more than a year. The new mark is 53.2 compared with 55.1 last month. “That is a nasty drop and at no point in the year has it been that low,” said Chris Kuehl, Kansas City-based NACM economist. “In December, it stood at 54.9 and that was seen as bad enough. The reduction in the overall score was reflected in reductions across the board—favorable and unfavorable factors in both the manufacturing and service sectors.”

The index of favorable factors tumbled out of the 60 range for the first time since March of last year—falling to 57.2 from 60.5 the previous month. Even February and March of 2014 was in better shape at 59.4 and 59.0, respectively. This is a massive decline and is causing a great deal of concern. The sales category slid out of the 60s to 59.5, and the last time it was this low was in March when it was 59.1. It was only a few months ago that sales were tracking at 65.7. The new credit applications category also dropped like a stone from 58.3 to 54.4—setting another record for the past two years. The one piece of positive news was dollar collections as it moved from 60.1 to 62.8, but amount of credit extended collapsed. In January, it was at 62.2 and now it sits at 52.1. “That is a nearly catastrophic decline and one that is worse than anything seen in close to three years,” said Kuehl. “It would not be an understatement to assert that there is suddenly a credit crunch manifesting, and that hasn’t been an issue since 2009.”

The index of unfavorable factors also declined, but compared with favorable factors that slide is almost benign. In January, it stood at 51.5 and now it is at 50.5. That is not such a big change, but this reading is now dangerously close to the contraction zone. Several of the sub-readings are now under 50, and that is not the trend that seemed to be setting up toward the end of last year.

To read the full February 215 Credit Managers' Index Report, click here.