April’s CMI Drop Flashes Warning Signs

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Credit professionals are reporting a drop in the April 2018 economic report from the National Association of Credit Management, leading some to believe that the latest readings are warning signs of what’s to come.

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 are worrying. This may be nothing more than a timing anomaly…

NACM’s April Credit Managers’ Index (CMI) plummeted to its second-lowest reading of the past year after the manufacturing and service sectors suffered substantial setbacks, particularly in dollar collections. What appeared to be a promising first half of 2018 has become more worrisome than anticipated, according to NACM Economist Chris Kuehl, Ph.D., who said credit managers are proceeding with caution due to the “blinking warning signs” of economic distress.

The CMI appeared a little unsteady over the past six months, reaching into the mid- to high-50s during the holidays, only to begin an ongoing decline in March following a modest bump at the beginning of 2018. Kuehl previously attributed March’s 55.6 combined CMI reading to unmet economic expectations; however, the score continued to drop in April to 53.7. Since April 2017, the lowest combined CMI reading was recorded at 53.6 in May.

Although April’s results aren’t awful, Kuehl said there are some concerns of over inflation and rising interest rates. “The overall sense of the data this month is reduced enthusiasm,” he said. “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 are worrying. This may be nothing more than a timing anomaly.”

The combined score’s favorable factors (60.2) took the most hits in the dollar collections, which fell sharply from 59.6 in March to 46.7 in April, well into contraction territory (a score under 50). New credit applications and the amount of credit extended dropped slightly, while sales increased nearly two points. Unfavorable factors entered contraction territory (49.4)—only disputes improved.

Fluctuations in the weather and the uncertainty of trade and tariffs between the U.S. and other countries may have contributed to the disappointing dollar collections—an example of the volatility the economy has seen so far this year.

Unlike the prior month, the manufacturing sector was better off in April when compared to the service sector, the former dropping from 55.2 to 54 and the latter from 56.1 to 53.4. Dollar collections, again, drastically declined in manufacturing and services to 46.1 and 47.3, respectively. Unfavorable factors in the manufacturing sector saw setbacks, most notably in credit application rejections, accounts placed for collection, dollar amount of customer deductions and bankruptcy filings. The same sector’s favorable factors improved in sales and the amount of credit extended, but dropped in new credit applications.

Kuehl said the turmoil in the manufacturing community grew in part from the steel and aluminum tariffs, which “hit costs very hard” and raised concerns of escalating prices.

“The sense is that there may be a breather underway—a time that manufacturers are taking to sort out some of the issues surrounding trade wars and tariffs and the overall expected pace of growth now that interest rates are headed up and markets are getting nervous.”

The service sector’s favorable factors (60.6) declined more so than its unfavorables (48.6). However, new credit applications were the only factor to improve, while all of the unfavorable factors worsened. The pressure is on for those in the retail, construction and health care sectors, Kuehl added.

For a complete breakdown of the manufacturing and service sector data and graphics, view the April 2018 report at http://web.nacm.org/CMI/PDF/CMIcurrent.pdf. CMI archives may also be viewed on NACM’s website at http://www.nacm.org/cmi/cmi-archive.html http://www.nacm.org/cmi/cmi-archive.html.

ABOUT THE NATIONAL ASSOCIATION OF CREDIT MANAGEMENT

NACM, headquartered in Columbia, MD, supports approximately 13,000 business credit and financial professionals worldwide with premier industry services http://www.nacm.org/services.html, tools and information. NACM and its network of affiliated associations are the leading resource for credit and financial management information, education, products and services designed to improve the management of business credit and accounts receivable. NACM’s collective voice has influenced federal legislative policy results concerning commercial business and trade credit to our nation’s policy makers for more than 100 years, and continues to play an active part in legislative issues pertaining to business credit and corporate bankruptcy. NACM's annual Credit Congress & Exposition http://creditcongress.nacm.org/ conference is the largest gathering of credit professionals in the world.

Contact: Michael Miller, 410-740-5560
     Andrew Michaels, 410-740-5560

Website: http://www.nacm.org

Source: National Association of Credit Management

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