China has been the focal point of the economic world, and rightfully so—trade wars and tariffs with the U.S. and now the outbreak of COVID-19, but credit professionals aren’t reporting much change in the latest Credit Managers’ Index (CMI) from National Association of Credit Management (NACM). February’s CMI declined two-tenths of a point to 56.2.
Three of the four combined favorable factors improved in February, yet several unfavorables dragged the overall reading down.
“The bottom line is there has been very little change despite the factors that might have affected the business community,” NACM Economist Chris Kuehl, Ph.D. said. “This is not to say that next month will not show reaction to all the global angst over the spread of the virus, but it is not showing up yet. The growth noted (in January) faltered a bit, but the data still remains strong, so it may be too early to draw many conclusions.”
Sales, new credit applications and amount of credit extended improved in February, but it was the sharp decline in dollar collections that raises concerns. “This seems to signal that more companies are starting to guard their cash flow,” Kuehl said. Rejections of credit applications (up 1.8 points) and accounts placed for collection (no change) were the only combined unfavorable factors to not decrease. Disputes fell over two points as did filings for bankruptcies. However, all six factors remained in expansion territory (score above 50) for the third straight month.
The manufacturing sector has seen its ups and downs in recent months.
“Manufacturing most definitely has been facing some serious headwinds, but there are still sectors that remain relatively healthy,” Kuehl said. “The slump has been pronounced in sectors connected to the aerospace industry as well as the agricultural sector, but automotive has been holding more or less steady. The worry now is that interruptions in the Chinese supply chain will have a negative impact.” Manufacturing favorables remained at 62, but the unfavorables dipped more than a point to bring the sector’s overall index to 55.9, which is still the second-highest reading (January 2020) in the last year.
The service sector paralleled manufacturing—the favorables remained the same month-to-month at 62.3. Sales improved slightly, while new credit applications jumped more than a point. The unfavorables actually improved in February, increasing a tenth of a point. Rejections of credit applications saw a large bump, but dollar amount beyond terms deteriorated. Overall, the service sector improved a tenth of a point.
“Services will likely see a spring rebound in the next month or two,” Kuehl said, “but there will be many keeping a close watch on the COVID-19 virus to see what effect it has on consumer behavior. … The service sector is always slow this time of year and, thus far, manufacturing is holding steady enough with all eyes on the impact of the virus outbreak.”
For a complete breakdown of the manufacturing and service sector data and graphics, view the February 2020 report.