The National Association of Credit Management (NACM) has said that its report of the Credit Managers’ Index for September fell to 54.9 from 56.7 in August. The drop is relative as the reading is still represented as firmly in the growth category, but readers should know that this is also the lowest reading in nearly two years.
One more issue handily stands out. The credit manager survey not this weak even in the polar vortex months, and it was also noted that the collapse was felt in a variety of categories.
It is hard to determine just what the issue is in this drop, when you consider that much of the other economic data of late has been good. Individual data were shown as follows:
- 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.
- Dollar collections went from 62.7 to 59.9.
- Amount of credit extended fell as well, from 66.7 to 64.0.
The NACM report said:
This was not a small reversal of fortune by any stretch of the imagination. 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. 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.
More negatives were seen as follows:
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.