Credit Trends Look Mostly Flat in February

Jon C. Ogg

Credit is what fuels the economy. Without credit, things grind to a halt. There is still the notion that too much credit is bad and risky, but that does not change the importance of credit. The National Association of Credit Management (NACM) released its Credit Managers Index for February, showing that the combined totals of this index were more or less unchanged.

The NACM’s verdict is that positive and negative trends in the sub-categories negated each other. Still, the devil is in the details.

Monday’s NACM report indicated that the question for credit managers is whether the positive trends in the sub-categories will be strong enough to pull the data forward in the weaker categories. This would indicate if there is an easing of credit or if there are more challenges ahead.

The index of favorable factors slightly improved to 58.6 from 58.2 in February. There was a less encouraging trend in the unfavorable categories, dropping to 50.1 in February from 50.3 in January.

The total combined score was 53.5, the same as January. Another note from the NACM said all four favorable sub-categories showed increases. Sales were leading the pack, rising to 56.8 from 55.8, and dollar collections were in second place with a gain to 58.3 from 57.8.

In the combined unfavorable categories, four of the six factors are in the contraction zone. Disputes had the only gain, moving to 49.7 from 48.6, and rejections of credit applications and dollar amount of customer deductions remained unchanged at 52.2 and 49.5, respectively.

The NACM’s report said:

In some respects, this (unchanged numbers for some factors and volatile trends for others) seems to reflect the economy as a whole. There has been similar activity in some of the other indices that are watched carefully for trend signals. The Purchasing Managers’ Index is back down in the 40s and that is worrisome, but at the same time, there has been a gain in the New Orders Index and that suggests that future readings could be stronger.

The good news is that there is a marked difference in the performance of the favorable factors as all of them are in expansion territory and one of the readings is above 60 (amount of credit extended). The decline of the unfavorable numbers suggests more and more companies are facing struggles to keep current on their debt. Thus far, the challenges are not unexpected with the companies engaged in the oil sector having the hardest time of it.

Investors and economists rarely use this credit trends report as a large trading tool for the market on any given day. That being said, a rival credit report is one of the 10 things used by the Conference Board each month for compiling the Leading Economic Index.