This month’s Credit Managers’ Index (CMI) reading from the National Association of Credit Management (NACM) declined, leaving the reading barely higher than it was in April, but falling short of the positive signal sent by May's increase. The readings are still firmly in growth territory, but are now just not trending in the preferred direction. The services sector took the brunt of the impact, and the manufacturing sector did not budge, for the second month in a row.
After the readings last month, it was thought that the CMI would show continued progress, but the manufacturing sector was flat and the service sector experienced a very sharp decline—enough to drag the index down. "The drop was unexpected, which has suddenly become a common refrain as some other data releases are starting to show similar trends," said NACM Economist Chris Kuehl, PhD. The economy is clearly not out of the woods just yet, and the latest revision of first quarter GDP also came as a shock. "It now appears that the economy contracted by far more than originally reported," Kuehl said. "Add to this the latest data on durable goods and there is something amiss. Consumer confidence numbers have recovered to levels not seen since the start of the recession, but that renewed level of enthusiasm has not been enough to pull the economy forward, or so it would seem."
The damage was greater in the unfavorable categories, although the favorable factors saw some decline as well. The biggest drop was in sales, which is still higher than it was at any point since November of last year, but after last month's surge, it was hoped the trend would accelerate. Dollar collections dropped out of the 60s and amount of credit extended also slipped but stayed very close to the record highs of late. New credit applications improved, which could be good or bad news. "The problem is that there were more rejections of credit applications as well," Kuehl said. "When there are more applicants and more rejections, it is a signal that more companies in financial distress are seeking credit in the hopes that somebody will help them survive."
A full report with graphs and sector breakdowns is available here.
- Jacob Barron, CICP, NACM staff writer