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July CMI drops to lowest reading in more than two years

The July NACM Credit Managers’ Index fell 1.6 points to 55.0—its lowest reading since June 2020. This is the third-consecutive month the CMI has deteriorated and could signal the start of a downward economic spiral, said NACM Economist Amy Crews Cutts, Ph.D., CBE.

“I think the CMI is nearing the tipping point between expansion and recession,” Cutts said. “I don’t think we are truly in a recession at the moment, but the economic winds are pushing us in that direction. What we don’t yet know is how this recession will look. For example, due to the tightness of the labor market we could see firms let positions go unfilled rather than engage in layoffs. There is no playbook for a pandemic economy’s behavior.”

The combined index of favorable factors dropped 1.2 points (63.6), down 5.0 points year over year. Three of the four favorable factors fell for the fourth month in a row, with new credit applications leading the decline with a 4.4-point loss (59.7). Sales slipped 0.8 points (65.8) and amount of credit extended dropped one-tenth of a point (67.6). The dollar collections category improved by 0.3 points to 61.2, yet several respondents noted that they are having to work harder to get these collections.

Falling below the 50-point threshold into contraction territory, the index of unfavorable factors lost 1.7 points (49.4). One unfavorable factor within the index improved: Rejection of credit applications saw a 0.6-point gain to 50.8. Dollar amount beyond terms led the decline with a 4.4-point drop (46.7), more than 10 points lower than last year. Accounts placed for collections lost 2.3 points (47.4); filings for bankruptcies, 2.1 points (53.7); dollar amount of customer deductions, 1.4 points (49.3); and disputes, 1.1 points (48.3).

“Looking for signs of recession in a volatile economic environment can sometimes be misleading, but it just feels like the economy is on weak footing,” Cutts said. “The Credit Managers’ Index is appearing to stabilize into a downward trend, not yet indicating a recession is occurring. But with all but two unfavorable factors in contraction territory and four to five months of declines in all favorable factors, I think we are seeing conditions changing for the worse.”

What CMI respondents are saying:

  • “The company needs staff. We are having trouble finding a full-time collection person, and we need help in manufacturing, distribution and administration. We are falling behind due to the lack of people in all areas.”

  • “Fuel price increases are a major factor driving financial distress for many of our customers.”

  • “Much of our sales increase is due to prices being so high, not necessarily the number of sales being higher.”

  • “Rising deductions are due to fines imposed by retailers—late delivery, out of stock, etc.”

  • “We are starting to notice things are slipping a bit, which is odd for this time of year.”

  • “Dollar amount of credit extended has more to do with increased prices than with increased orders.”

  • “International transactions are taking longer to collect. We are seeing shipments delayed up to 60 days before they leave the port.”

If you would like to participate in the monthly CMI, sign up to receive survey participation alerts. For a complete breakdown of manufacturing and service sector data and graphics, view the July 2022 report. CMI archives also may be viewed on NACM’s website.

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