After a crash of near epic proportions, there has been a significant rebound. But even with these better numbers, the economy is in trouble and credit managers should remain wary.
COLUMBIA, Md. (PRWEB) June 03, 2020
After what can be considered the worst month in the history of NACM’s Credit Managers’ Index (CMI), several factors rebounded in May. The current index showed many gains, especially in the favorable factors, but NACM Economist Chris Kuehl, Ph.D., says don’t celebrate too early.
The combined index jumped to 44.1 in May after freefalling to 40.6 in April. All four favorable factors improved, but they all remain in contraction territory (under 50). The new credit applications category was the big mover in May, vaulting from 31.1 to 43.3, and sales increased more than eight points to 28.6. The unfavorables inched forward in May due to improvements in accounts placed for collection, dollar amount beyond terms and dollar amount of customer deductions. Rejections of credit applications worsened but still sit above 50 in expansion territory. A key factor was bankruptcy filings, which slipped into contraction for the first time in several years, noted Kuehl. “This is a sign that already weak companies are succumbing to the lockdown recession.”
In the manufacturing sector, amount of credit extended was the only favorable factor to slip—roughly two points. New credit applications and dollar collections each jumped back into the 40s, but sales remained below 30. Four of the six unfavorables improved and stayed in expansion territory. Dollar amount beyond terms improved but is in the 30s. Bankruptcies fell into contraction territory, albeit at 49.3. The overall sector index improved to 44.1 from 42.
The service sector fared slightly better than manufacturing, also hitting 44.1. Sales was the lone favorable to not join the 40s, while new credit applications skyrocketed from 26.5 in April to 43.5 in May. Dollar collections improved as well, a good sign as far as recovery is concerned. “It would indicate that companies were both able to pay their creditors and were willing to do so. In the prior month, the desire to hoard cash was overwhelming the desire to stay current on their credit,” Kuehl said. The theme of bankruptcies continued in the service sector, falling deeper into contraction at 45.3 from 49.3. Rejections in credit applications also fell but stayed in expansion territory. Accounts placed for collection and dollar amount of customer deductions improved, with the latter rejoining the expansion zone.
“After a crash of near epic proportions, there has been a significant rebound. But even with these better numbers, the economy is in trouble and credit managers should remain wary,” Kuehl said. “The willingness to take some risks will be present with manufacturers, but the service side will be treated with more caution and trepidation. The data this month would suggest that many are seeing a better future ahead,” continued Kuehl.
“It may be possible to assert that April will be the bottom of this crisis and conditions should improve from this point. Over the last few months, the majority of the damage has been seen in the favorable factors as the lockdown recession took its toll. It was impossible for the majority of the business community to function at any level under these conditions, but now there appears to be a slow and halting movement to allow the recovery of the economy.”
For a complete breakdown of the manufacturing and service sector data and graphics, view the May 2020 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.
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Contact: Michael Miller
Source: National Association of Credit Management