Daily News: July 3, 2012

‘Spring Swoon’ Complete With Slight Drop in June CMI


The National Association of Credit Management’s Credit Managers’ Index (CMI) for June sits at 54.5, just slightly behind May’s reading of 54.6. The sub-index of favorable factors maintained a reading of 60.2, with the sub-index of unfavorable factors moving downward slightly to 50.6. The reasons for the flux in unfavorable readings are concerning, but instructive, and provide hints to where the economy may be heading in the summer months. The variation in favorable factors also point to changes ahead. The differences are subtle, but significant, and that is where the real story gets told.

The most distressing trend of the latest CMI is that sales continue to sag. The decline from 61.2 to 60.6 matches the low point set in April, when sales slipped to 60. The trend for the year had been more aggressive with readings between 63.5 and 64.4, but the pace has since struggled. The new credit applications number also declined to 57.5, reaching a low not seen since December 2011. The slowing pace of expansion does not bode well for the summer months. However, a solid increase in dollar collections, which returned to the 60s from 58.5, and the rise in amount of credit extended from 61.3 to 62.6 “was good news to be sure,” said NACM economist Chris Kuehl, PhD. “The favorable factor index was above 64 from December through April, so there is still plenty of room for improvement. In the end, the areas that improved were offset by the areas that fell back.”

The movement in unfavorable factors is interesting. There was a slight overall decline obscuring a lot of the variability within this index. The concern going forward is for the three categories now under 50. The biggest shift took place in accounts placed for collection, down from 50.5 to 48.3. There was also deterioration in dollar amount of customer deductions, from 50.2 to 48.7. On the brighter side, filings for bankruptcies changed little, dipping from 56.4 to 56.

“The pace of bankruptcy activity has not sped up significantly and that is a good indication of the fact that most business has not yet fallen back to the miserable patterns of a year or so ago,” said Kuehl. The shifts were subtle. The resulting collective number barely changed from what it was last month, and is close to the pace noted for the past year. “Thus far, there does not seem to be an acceleration of distress, and that can be counted as a positive, though it would be nice to see the categories crest above 50 and stay there for a while,” Kuehl noted. “Through the course of the year, the lowest level in unfavorable factors was set in August 2011 when it sagged to 49.1, with the highest point set in March 2012 when it reached 52. That is a very narrow band and suggests most companies are holding their own, but not growing like many expected.” The data coincide with the majority of the data cascading through the system thus far this year. Durable goods orders have been steady but anemic; the Purchasing Managers Index has not been bad, but not all that good either. Capacity utilization shows a 20% slack and so on.

“The economy as a whole seems to have settled into a pattern that is not in crisis, but neither is it expanding at an acceptable pace,” said Kuehl. “It has been opined that no news is good news. There is something to be said for a month of data that didn’t really change, especially when changes of late have been more negative than positive. The latest CMI report is nearly identical to the prior reading, and right now that is a cause for some optimism. Not that there weren’t variations in the details-those will be the trends assessed in the coming months.”