Credit managers are reporting a slight decline in the June 2019 economic report from National Association of Credit Management; however, they should not be discouraged by the readings as unfavorable factors held their ground in the manufacturing and service sectors.
 
The June Credit Managers’ Index (CMI) is not what credit professionals would have hoped for following two straight months of improvement; however, the report is not all bad despite the 0.7-point decline. June’s combined reading of 55 is still comfortably within expansion territory (score above 50), marking the first instance of consecutive months scoring at least 55 since August and September 2018.

“Last month we were grasping at straws and thought we might have the beginning of a trend, but that didn’t last long,” said NACM Economist Chris Kuehl, Ph.D. “This month, there was a substantial decline in the manufacturing sector and minor one as far as service was concerned.”

Much of the slight drop is due to the combined favorable factors, with sales the biggest culprit. While remaining in the 60s, sales slid 5.5 points in June. New credit applications and amount of credit extended also slipped while remaining in the 60s. New to “Club 60” was dollar collections, crossing the threshold for the first time since November 2018—the last time all four favorables were in the 60s. Overall, favorables declined 2.4 points to 61.4.

“The bad news is that the two-month positive trend has ended. but the good news is that there has not been the dramatic decline that has been seen in some of the other indicators,” said Kuehl.

Combined unfavorables were a different story. They continued to climb into expansion territory at 50.7 in June, helped by gains in rejections of credit applications, accounts placed for collection, dollar amount of customer deductions and bankruptcies. Accounts placed for collection and dollar amount of customer deductions were back in expansion territory at exactly 50, the former the first time since September 2018. Dollar amount beyond terms dipped back into the contraction zone at 49.8. Disputes remained unchanged at 48.6, and bankruptcies were relatively unchanged with an uptick of 0.2 points.

The manufacturing sector dropped modestly in June and fared slightly better than its service sector counterpart. Sales had the biggest impact with a nearly five-point drop to 58.5. New credit applications, dollar collections and amount of credit extended also declined in June, leading to much of the sector’s minor downfall. The unfavorable factors were the savior here—four of the six saw an upswing. Filings for bankruptcies was unchanged at 52; dollar amount beyond terms was the only factor to decline, yet it stayed in expansion territory. Accounts placed for collection burst back into the expansion zone at 53.5, a gain of 4.5 points. Disputes and dollar amount of customer deductions both increased as well but stayed in contraction territory at 48.3 and 49.8, respectively.

This narrative continued into the service sector, dragged down by the favorables and uplifted by the unfavorables. “The test for the service sector will come this summer as many of the major categories are going into their peak seasons. Retail and entertainment as well as travel all wait for the summer months, and this is also a peak time for much of the construction sector,” said Kuehl.

Sales again pulled the overall service index down with a more than five-point drop. Meanwhile, new credit applications and amount of credit extended also declined. The saving grace was the unfavorables, which inched upward to 50.2 for a second consecutive month in expansion territory. Accounts placed for collection, dollar amount of customer deductions and bankruptcies each increased slightly in June. Dollar amount beyond terms fell back into contraction territory after jumping back in during May’s index for the first time in several months. Overall, the service sector was worse off than manufacturing with a nearly one-point drop.

“Generally speaking, the data this month trends positive, albeit at a slower pace than was attained earlier. Given the CMI often predicts the behavior of the PMI, it will be interesting to see what happens in the months ahead. The news conveyed by the CMI has been a little mixed of late, but the nice recovery in the nonfavorable categories has been encouraging,” said Kuehl.

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