September’s Credit Managers’ Index saw growth across all sectors and most categories, but this growth may not last, according to NACM Economist Chris Kuehl. Precautionary buying from Chinese tariffs and holiday shopping preparation likely caused an uptick that isn’t expected to last.

The CMI climbed a total of 0.6 points in September, keeping with the upward trend set by the summer—but this climb from 55.8 to 56.4 comes with caveats. While modest growth was seen across both the manufacturing and service sectors along with the combined favorable and unfavorable factors, Kuehl attributes much of the growth to precautionary buying and preparing for the holiday shopping season.

The CMI still remains above the mid-50s, comfortably in expansion territory; the combined index is also the highest it’s been since May. Kuehl said industrial production increased, along with the overall gross domestic product (GDP). While this may seem contradictory given the U.S. trade wars, Kuehl said this correlates with the last call before the tariffs are finally put in place.

Looking at the favorables in the combined sectors, a score of 65.2 shows a nearly one-point growth from last month. The sales category showed the most impressive reading for the favorables with a 3.8-point spike to a total score of 68.8. Kuehl said this is where the precautionary buying comes into play as companies attempt to insulate themselves before the tariffs. New credit applications fell from 62.5 to 61.9 as businesses remain cautious to extend to new customers during times of economic uncertainty. Dollar collections data did not see any significant changes, rising slightly from 62.6 to 62.8.

“This has been the pattern for the year as a whole as the high point [for unfavorables] was reached in September of last year when it hit 51.8,” Kuehl said. “This continues to be the prime concern for the CMI data—why are there still so many struggling operations given the overall growth of the economy and the good news that has been registered in the favorable categories?”

The main causes for concern this month appeared in the unfavorable categories. Rejection of credit applications fell alongside the favorables’ new credit applications, meaning more companies with questionable financial futures seek credit than last month—many of which are likely companies that deal with foreign trade. The accounts placed for collection saw the most positive improvement as it edged into expansion territory, from 49 to 50.2, signaling some growth in both sectors. Filings for bankruptcies fell to 55.6—still comfortably in expansion—as companies have been learning to work themselves out of threatening ordeals.

The manufacturing sector went up from 55.9 to 56.4, showing only minimal growth. Kuehl said this sector will be worth monitoring come October when tariffs are put in place. The favorable factors did not change from last month with the score staying at 64.4—a potential warning sign for the near future, Kuehl said. The sales category went up 1.7 points to 68.2, a clear indication of lots of frantic activity designed to beat the deadlines. Like the combined readings, the unfavorables for manufacturing raise concerns as the 51.1 reading flirts with the contraction territory. While this is still an improvement from August, the readings fall into line with anxiety around international trade.

The service sector saw much activity this month as retail stores prepare for holiday shopping. The score for service rose by 0.7, remaining in expansion territory at 56.4. The favorables saw the most growth, coming in at 1.7-point increase up to 65.9—a healthy reading, with sales coming it at a whopping 69.4. Like the other sectors, unfavorables do not look positive moving forward. This month saw a growth of only 0.1, with the one-point growth in dollar amount beyond terms carrying the unfavorables.

“This is all somewhat surprising given turmoil and controversy over tariffs and trade wars, but timing is everything,” Kuehl said. “The truth of the matter is many of these tariffs and restrictions have not yet come to pass. Lots of frantic activity to beat the deadlines. That motivation will fade through the remainder of the year.”

For a complete breakdown of the manufacturing and service sector data and graphics, view the August 2018 report.