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Credit Managers’ Index Shows Signs of Distress

Monday, April 30, 2018  
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The latest Credit Managers’ Index is showing signs of distress, slipping for the second consecutive month in April. Data from the National Association of Credit Management (NACM) shows the overall index moving from 55.6 in March to 53.7, its lowest point in 11 months.


“The numbers are not awful at this point—many of the indicators are still solidly in expansion territory, but the warning lights are starting to blink,” said NACM Economist Chris Kuehl, Ph.D. “In just the last few weeks, there has been more concern over inflation and the eventual Fed reaction. Yields for the 10- year treasury just broke through the 3% psychological barrier. That has many wondering what interest rates will look like. Some of that caution seems to be showing up among credit managers as well.”


The index of favorable factors continued to decrease but is still holding a position in the 60s. Last month’s reading of 63.2 dipped to 60.2 in April. The unfavorable factors declined as well, moving from 50.6 to 49.4. 


Looking into the favorable factor subcategories, salesincreased from 64.1 to 65.8. New credit applications declined slightly from 62.7 to 62.2. The dollar collections category plummeted from 59.6 to 46.7. This plunge may be an anomaly, but it may signal an unanticipated level of distress. Amount of credit extended held relatively stable, moving from 66.2 to 66.1.


All but two of the unfavorable subcategory numbers are now in the sub-50 contraction zone. Rejections of credit applicationsdeclined from 53.3 to 51. Accounts placed for collectionfell to 48.7 from 50.4. The disputescategory remained in contraction but increased from 47.7 to 48. Dollar amount beyond termsdropped to its lowest point since last May, 46.4 compared to 47.2 in March. The dollar amount of customer deductionscategory dipped from 49.8 to 48.4. The filings for bankruptciesremained in the expansion zone at 53.8 from 55.2.  


There is not an immediate crisis manifesting as long as the favorable factors are in the 60s, but the collapse in the dollar collection numbers is worrying, according to Kuehl. This may be nothing more than a timing anomaly. Extreme weather has taken its toll, and there has been a lot of uncertainty regarding trade and tariffs. Both dollar collections and slow pays have been volatile this year. This may be another example of that volatility.   


View the complete report and analysis from NACM.


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