NACM’s August CMI Reveals Stress in Manufacturing Sector

The National Association of Credit Management’s Credit Managers’ Index (CMI) remained at a combined score of 55 in August, with improvements in unfavorable factor indexes offsetting deterioration in favorable factor indexes. Several respondents noted that supply constraints are still problematic, and many also indicated that receivables are slow coming in due to customer staffing issues or inability to meet terms.

“While the CMI remains five points above the contraction threshold, the favorable factor index is at its lowest level since June of 2020, and the unfavorable factors index is at the second lowest reading since that time, with last month’s value being the lowest,” Amy Crews Cutts, economist at the NACM, said. “The broader economic conditions, like inflation, labor shortages and demand shifts, are becoming more evident in the CMI.”

Three out of four categories in the favorable factors list dropped in the August survey. The dollar collections index led the decline with a sharp 3.5-point drop to 57.7, its lowest level since June 2020. Half of the unfavorable factor indexes for the combined CMI improved in the August survey. Consistent with data on federal court filings for bankruptcies, member respondents noted that the share of customers that were filing for bankruptcy in the most recent CMI survey was down, with the index showing a 3.9-point improvement over the July level. The filings for bankruptcies index, at 57.6 points, was at its best level since June 2021.

“The Credit Managers Index is reflecting so much of the news we’re reading about the economy in general,” Cutts said. “The CMI is showing the impact of inflation in the sales index, the effects of the Fed’s policy tightening on rejections of credit applications and applications for new credit indexes, and supply chain issues in the disputes index. But at the same time, the combination of all these factor indexes is pointing to a pretty good situation currently despite possible storm clouds forming.”

However, the Manufacturing CMI lost 2.5 points in the August survey to sit at 51.6, its worst reading since May 2020. All favorable factor indexes have recorded declines in each of the past four surveys. The favorable factor leading the decline in the August survey was the sales index with an 8.8-point loss to 52.9, which is 12.3 points lower than a year ago and its lowest value since May 2020.

“The abrupt drop in the manufacturing sector CMI this month is quite telling,” Cutts said. “The large decline in most of the factor indexes, especially those indexes tied to sales, dollar collections and dollar amount beyond terms, suggest that the recession may be starting in the sector. Credit underwriting appears to be getting tighter, with more customers being denied on their credit applications. The Fed has been walking a tightrope, trying to get inflation in check [while] avoiding an economic recession. The impacts of their monetary policy tightening are now showing up in the manufacturing sector, but how much deeper they will be felt will depend on many factors.”

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