The shift in the January Credit Managers’ Index (CMI) was very minor, falling from 54.9 to 54.6. On closer examination there was a lot going on, reflecting that the economy is essentially in a transition mode again. The last time this kind of variety appeared in the National Association of Credit Management’s (NACM’s) index of ten factors was during the months that preceded the slide into recession in 2008. For every sign that things were deteriorating, there was a part of the index that looked solid and unaffected by the impending crisis. Now that transition is showing again, but this time it seems to be pointing in the other direction. For every factor that suggests the economy is still in the doldrums, there is one or two that point to better days ahead.
To begin with, sales improved to 58.6, which may be the most positive sign of all. For eight of the prior 12 months, the sales number had been over 60. That started to reverse in September 2012 when it fell to 59.5, with the worst occurring in December when sales fell to 56.7, a level not seen in over a year. Now it has rebounded and, while not in the 60s yet, it’s headed in the right direction.
In contrast, dollar collections fell from 59.2 to 56.9, a very poor performance. New credit applications also declined, falling to 57.1 after improving to 57.7 in December. “The number for new credit applications is important in that it tends to anticipate the gains some of the other factors will have later,” said NACM Economist Chris Kuehl, PhD. “If there is not much in the way of new credit activity, it is a signal that fewer companies are in expansion mode. But data coming from other economic indicators show that expansion is apparently still on the minds of many business people. The next Purchasing Managers’ Index is expected to show some improvement as far as new orders are concerned and there continues to be expansion in capital expenditure." A further reflection of this continued expansion is that the amount of credit extended factor continued to gain, rising from 61.5 to 62.2.
When looking at this month’s total for the favorable factor index, there was really no change from December. It fell just a tenth from 58.8 to 58.7. There was a little more variation in the unfavorable factor index, which dipped to a slightly larger degree, from 52.3 to 51.9. As with the favorable factors, the real information is in the details.
Rejections of credit applications improved from 51.5 to 52.8, reinforcing the notion that there is still expansion and growth underway. The falloff starts with accounts placed for collection, which declined from 52.1 to 50.4. Kuehl noted that this indicates that companies are getting into financial trouble again due to the slower-than-expected fourth quarter. “The news that the national GDP declined in the fourth quarter comes as little surprise to those watching some of the early indicators,” he said. The disputes category barely changed, from 50.5 to 50.4, but there was marked negative movement in dollar amount beyond terms, which slipped from 50.9 to 49.6 and fell into contraction territory again for the fifth time in the last 12 months. There was also a reduction in dollar amount of customer deductions from 51.3 to 50.3. This is not a major drop and still places it just above that contraction/expansion mark. On the bright side, there was continued improvement in filings for bankruptcies from 57.4 to 58.1.
“The overall slump in the unfavorable factor index was not a major fall,” said Kuehl. “It signals that for all the potential growth, there are still many fragile companies not in a position to withstand a lot more financial stress.”
This month’s report marks the CMI’s ten-year anniversary. Since the release of the first report in January 2003, the CMI has proven itself to be a remarkably accurate forecasting tool relied upon by economists, policymakers and financial professionals. The complete CMI report for January 2013 contains more commentary, complete with tables and graphs. CMI archives may also be viewed on NACM’s website.
NACM, headquartered in Columbia, Maryland, supports more than 15,000 business credit and financial professionals worldwide with premier industry services, tools and information. NACM and its network of affiliated associations are the leading resource for credit and financial management information, education, products and services designed to improve the management of business credit and accounts receivable.
Read the Full January 2013 Credit Managers' Index (CMI) report.