US Credit Managers Exude Pessimism

According to the National Association of Credit Management’s (NACM) economic report for October 2012, the indicator fell almost a full point largely on poor performances from sales and collections numbers. More payments are beyond terms as well, indicating companies are struggling to meet obligations.

The October Credit Managers’ Index fell from 55.3 to 54.4, reflecting the mood of the overall economy right now. Some aspects point in a positive direction, and some are decidedly worrying. The sense is that a few of the big issues that have been affecting other economic measures are having an impact on the CMI as well. It is hard to point explicitly at the “fiscal cliff” as a cause for overall decline, but it is also quite apparent that the uncertainty affecting business decision-making is having an impact, as some of the future indicators are weaker than expected at this point.

The most distressing number in this month’s survey, and the one that seems to point to the fiscal cliff issue, would be sales. The October sales number has fallen as low as it has been since the middle of last year, settling in at 57.4. In July, the sales index dipped under 60 for the first time since November 2011, but in August there was a strong rebound to 62. That was followed by September’s slip to barely back under 60 to 59.5. “Given that many companies continue to indicate that they are planning more capital expenditures, there is not much to attribute this drop to other than worry about the outcome of the fiscal cliff issue,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). “The silver lining in this case would be that a solution to the crisis would likely result in a jump in capital expenditures and investment in general. The downside is that the powers that be could still allow the unthinkable to occur.”

In most respects, the other favorable factors stayed comfortably above the 50 mark despite the fact that all four categories slipped. Amount of credit extended is still solidly in the low 60s with a reading of 62.2. New credit applications slid from 57.4 to 56.6, the lowest since late last year. Dollar collections moved downward pretty sharply from 58.5 to 54.6. “This is cause for some concern as this is the lowest reading for collections in over a year,” said Kuehl. “There is mounting evidence that the business community is retrenching to some extent.” It should be noted, however, that the reading is still in the mid-50s and well into expansion territory, just like the overall favorable factor index, which fell to 57.7.

The unfavorable factors also saw some decline, but nothing as dramatic as in the favorable factor numbers. The shift in the unfavorable factor index from September to October was very slight, a decline from 52.6 to 52.3. This slow erosion and essentially flat performance since the August reading of 53.1 is better news than one would assume given all the struggles that the economy has been plodding through of late.

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