The Credit Managers’ Index (CMI) from the National Association of Credit Management (NACM) has left pre-pandemic numbers in the dust. October’s CMI rose 2.4 points to 58.4, its highest combined score in more than a decade and a half. Primarily due to large improvements in the favorable factors, October’s CMI surged after hovering around pre-pandemic data in July, August and September.
“This spring’s economic disaster will be with us for some time to come,” said NACM Economist Chris Kuehl, Ph.D. “This month’s rebound will have to be balanced against the unprecedented collapse this spring and it may be well into 2021 before the data starts to settle down and provide a more accurate picture.”
Sales led the way, soaring to 74.2 from 65.5. New credit applications and dollar collections also improved to 65.2 and 64.6, respectively. Amount of credit extended climbed roughly seven points in October to 68, the same score as the overall combined favorables.
“Companies that have managed to emerge from the lockdown appear to be trending toward seeing significant demand and new opportunities which is driving requests for more credit,” Kuehl said. While not as impressive as the favorables, the unfavorables improved slightly by 0.8 points to 51.9. Although dipping slightly in October, rejections of credit applications, dollar amount of customer deductions and filings for bankruptcies all stayed in expansion territory with scores above 50. Accounts placed for collection rose by the smallest of margins but stayed under 50 at 49.5. Disputes jumped back into expansion territory at 51, and dollar amount beyond terms improved several points to 58.
The manufacturing sector saw a 3.5-point increase to 58.8 in October—again led by the favorables. Sales skyrocketed more than 10 points to 75.3, while amount of credit extended is slightly below 70 after a nine-plus-point climb. New credit applications and dollar collections also improved modestly to bring the favorable index to 67.9. Every unfavorable factor was within the expansion zone to bring the unfavorable index to 52.6, more than two points better than the previous month. Accounts placed for collection, disputes and dollar amount of customer deductions each improved into expansion territory. Rejections of credit applications and dollar amount beyond terms rose higher into expansion territory. Filings for bankruptcies declined slightly to 51.2.
“If there is to be an increase in bankruptcy activity, it is more likely to hit after the first of the year and the end of the holiday spending season,” Kuehl noted.
The service sector showed much of the same with sales leading the way with a huge leap to 73.1 from the mid-60s. “The worst of the sector collapse is over, and there has been movement in a positive direction,” said Kuehl. Increases in new credit applications, dollar collections and amount of credit extended pushed the overall favorable index up four points to 68.1. Four of the six unfavorable factors declined in October to land the unfavorable index at 51.3, half a point lower than the month prior. Rejections of credit applications dropped to 50, while accounts placed for collection declined further into contraction territory. Disputes climbed out of contraction, and dollar amount beyond terms improved slightly. Dollar amount of customer deductions and filings for bankruptcies both stayed in expansion territory despite declines. The overall service sector improved 1.3 points from September to 58 in October.
“The gain of nearly twenty points [since April] is a bounce back to be sure but not really as impressive as it would appear at first glance,” said Kuehl. “This is dramatic to be sure but needs to be put into some perspective. While third quarter GDP is projected to climb by more than 20 percent, it’s important to remember that GDP fell by more than 35 percent in the second quarter.
The bottom line is that month-to-month comparisons will be very unreliable for a few more months.”
For a complete breakdown of the manufacturing and service sector data and graphics, view the October 2020 report here.