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May CMI Reaches Higher for Second Consecutive Month

 

After four months of fluctuation, NACM’s Credit Managers’ Index (CMI) broke the cycle in May when readings increased for the second month in a row, experiencing gains in both the manufacturing and service sectors. Reaching its highest reading since November 2018, the CMI’s combined score climbed to 55.7 thanks to positive results in the favorable factors.

Over the past six months, combined favorable factors showed little movement, occasionally breaching a reading over 60, only to decrease the following month. However, in May, favorable factors jumped 3.7 points to a reading of 63.8, with the largest gain seen in sales at 65.9. Both the amount of credit extended and new credit applications also increased by nearly five points, while dollar collections improved by less than a point.

Contributions from combined unfavorable factors were sparse in May with a 0.2-point bump. Two of the six unfavorable factors showed improvement: dollar amount beyond terms (3.7-point gain) and disputes (0.1-point gain). Accounts placed for collection fell to 47, further into contraction territory (scores below 50), along with dollar amount of customer deductions (49.3).

“[Accounts placed for collection] is essentially the last stage as far as credit is concerned and signals that something more drastic may be coming, such as bankruptcy,” NACM Economist Chris Kuehl, Ph.D., said. “In contrast to the news on accounts placed for collection, the [dollar amount beyond terms] reading suggests that some companies are catching up with their credit obligations.”

The manufacturing sector thrived in May with a reading of 55.4 as a result of the 4.2-point jump in the favorable factors. A number of credit managers increased their amount of credit extended (64.6) in addition to modest gains in sales and new credit applications. Dollar collections (60.5) also increased by about two points. There was little change in the sector’s unfavorable factors, where only disputes (48.2) and dollar amount beyond terms (51.8) improved. Accounts placed for collection, disputes and dollar amount of customer deductions remained in contraction territory.

For the second month in a row, the service sector’s readings (55.9) showed better results, albeit slightly less than the manufacturing sector. Sales skyrocketed more than five points to 68.5, the highest reading since September 2018. Following closely behind was new credit applications and the amount of credit extended. Dollar collections was the only favorable to worsen in May but maintained a reading in the high-50s. The service sector’s unfavorables increased more so than those in manufacturing, bordering contraction at 50.1. Credit application rejections, dollar amount beyond terms and dollar amount of customer deductions grew, as accounts placed for collection, disputes and bankruptcy filings dropped.

“There are signs that some of this momentum will certainly carry forward through the bulk of the summer,” Kuehl said. “If there are warning signs ahead, they seem to be toward the latter part of the year.”

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