The September report of the Credit Managers’ Index (CMI) from the National Association of Credit Management fell to 54.9 from 56.7. While still firmly in the growth category, this is the lowest reading in nearly two years. Not even the Polar Vortex months were this weak and the collapse was felt in a variety of categories. This was not a good month and that brings a great many concerns to the forefront.
“This was not a small reversal of fortune by any stretch of the imagination,” said NACM Economist Chris Kuehl, PhD. “This could be termed a collapse, and it begs a very important question. Which is correct: the Purchasing Managers’ Index or the Credit Managers’ Index?” In past years, it has been noted that the CMI tends to predict the pattern that will be seen in the PMI in the next month or two. “If that assessment continues to be accurate, the economy as a whole may be in for a very rude awakening,” Kuehl said. “The numbers this month are almost shocking and there will be intense interest in what the index reports in the next iteration as this will determine whether this is the start of a depressing trend or just one of those anomalous months. The one factor that may provide some hope is that August and September are often difficult to get an accurate read on given the vagaries of the summer break and the return to school.”
The index of favorable factors hung onto the 60s, but just by a hair with its fall from 63.8 to 60.9. One of the big declines was in sales, which fell from 64.8 to 60.9, a low going back to March. New credit applications went from 60.9 to 59.0. Though not a huge drop, it is now below 60 for the first time since May. Dollar collections went from 62.7 to 59.9, a more substantial drop out of the 60s. Amount of credit extended fell as well, from 66.7 to 64.0. Importantly, these are still decent numbers overall, just not as exciting as they were a month ago. This may have more to do with a surge in the past than any comment on the situation right now.
More distressing is that unfavorable factors worsened, indicating some real business distress. The index fell from 52.1 to 50.9, dangerously close to slipping into contraction territory. Rejections of credit applications actually improved from 51.9 to 52.5, bringing speculation that some companies got a little looser with credit as sales started to sag. Accounts placed for collection fell from 52.1 to 50.7, which worries many as it appears that some of these accounts in trouble were in decent shape not long ago. Disputes increased, causing the factor to slip into the contraction zone—from 50.6 to 49.2. Dollar amount beyond terms also plunged into negative territory, from 50.3 to 47.2. This is one of its sharpest drops all year and a low not seen in almost two years. Dollar amount of customer deductions also declined. It has been sinking for a while and is now sitting at 49.8. Filings for bankruptcies went south as well, moving from 57.5 to 55.8. All in all, these numbers are bad and signal more distress to come.
It is hard to determine just what the issue is given that much of the other economic data of late has been good. Durable goods numbers set a record last month, but that was due to Boeing more than anything else. The data for the second quarter GDP gets better with every revision and there have been improvements in everything from capacity utilization to employment. “Has this boom come to an end already? Are these good numbers from the economy not much more than a last gasp before sinking again?” Kuehl said. “Right now, the CMI data would seem to suggest this, but next month’s could be a different story.”
For a full breakdown of the manufacturing and service sector data and graphics, view the complete September 2014 report at http://web.nacm.org/CMI/PDF/CMIcurrent.pdf. CMI archives may also be viewed on NACM’s website at http://web.nacm.org/cmi/cmi.asp.