According to the National Association of Credit Management (NACM), the seasonally adjusted Combined Credit Manager’s Index fell 0.9% to 50.1% in June, “setting or tying a number of unpleasant records in the process,” said Daniel North, chief economist with credit insurer Euler Hermes, ACI, which issues the report for NACM.
“What a difference a month makes,” North said. “In contrast to last month’s cheery tone, credit managers now seem downright depressed. While the housing market used to be the single largest source of misery, fuel prices are starting to take over. As gasoline continues to set record inflation-adjusted levels, businesses from retailing to transportation to groceries are suffering. Given that May was the fifth straight month for job losses, real retail sales and wage growth are both negative year over year, foreclosures are at sky-high record levels and business bankruptcies continue to rise, it’s no wonder that the majority of credit managers are seeing tough times.”
NACM said that the seasonally adjusted manufacturing sector index fell 2.7%, to 49.8%, indicating economic contraction and marking only the second time it has ever fallen below 50, with two components of the index—dollar collections and dollar amount beyond terms—setting record lows.
Year-over-year on a seasonally adjusted basis, all ten components in the three NACM indexes fell, with the combined index dropping 6.3%, manufacturing falling 6.9%, and the service index down 5.7%, NACM said.
“All three indexes tied their records for the most components below the critical 50 value indicating economic contraction: six for the combined and manufacturing indexes, and seven for the service index,” North added. “A record nine components fell in the manufacturing index. The combined and manufacturing indexes reached their second lowest levels ever at 50.1 and 49.8, respectively.”
“Customers are attempting to stretch out their terms.” North said. “Once again rising prices affected the survey as one participant reported that higher sales figures were due only to higher prices, not higher volume, and another explained that his increased sales were due to customers rushing to purchase goods before a price increase took effect.”
North said survey participants noted difficulties caused by rising fuel prices, but customer payment patterns were the source of an unusual number of complaints: ‘very slow pay for big jobs,’ ‘customers experiencing cash flow issues,’ ‘a rise in collection problems,’ ‘past-due accounts getting harder to collect,’ ‘significant spike of cash flow problems,’ ‘more customers extending out payment terms’ and ‘the number of accounts being placed for collections is rising.’
The CMI is a monthly survey that asks credit managers to rate favorable and unfavorable factors in their monthly business cycle--with favorable factors including sales, new credit applications, dollar collections and amount of credit extended, and unfavorable factors including credit application rejection, accounts placed for collections, dollar amounts of receivables beyond terms and filings for bankruptcies.