May Credit Managers' Index Increases, Signals Continued Recovery

NACM's May Credit Managers' Index (CMI) improved again in May, marking the second consecutive month of improvement for the index and further signaling the end of the first quarter's snow-addled economic turmoil. A strong increase in sales boosted the index's favorable factors and there was positive movement in the unfavorable factors as well, but a nagging, somewhat inexplicable increase in disputes kept the unfavorable index flat this month.

Earlier in the 2014 the CMI predicted poor economic performance in the first quarter with a short series of declines that was eventually reflected in the US Commerce Department's downward revision of the US gross domestic product (GDP) figures. Released this week, the Bureau of Economic Analysis' latest GDP data showed that the economy had endured negative growth at a rate of 1% for the first three months of the year, mirroring similar declines in the CMI in late 2013 and early 2014.

Recent CMI readings, however, have supported the hypothesis that analysts can expect the second quarter data to be much more positive. As mentioned previously, the best news in the May report came in the favorable factors index, which reached its highest reading in the last year thanks to a leap in sales. Only new credit applications saw a decline in May, which suggests that, in general, new applications for credit have slowed, but those that are applying are in better financial shape. Additionally more credit is being extended as well, signaling that there are fewer applicants but the companies seeking credit are seeking larger amounts.

A sharp deterioration in disputes kept the unfavorable factors index from growing in May, and the indicator remained flat despite improvements in every other unfavorable factor. The decline in disputes, which signifies more disputes, could be driven by customer desire to amend credit agreements in anticipation of future growth or simply by the short-term, temporary nature of the first-quarter decline.

For a full breakdown of the manufacturing and service sector data and graphics, view the complete May 2014 report here. CMI archives may also be viewed on NACM’s website here.

- Jacob Barron, CICP, NACM staff writer

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