Despite recent spikes in COVID-19 cases, NACM’s June credit managers’ index (CMI) supports the predictions of a V-shaped recovery. The June CMI shows that the economy is on the road to recovery, with many sectors doing a 180 by jumping back into expansion territory (a score above 50).
The manufacturing and service sectors each went from an overall score of 44.1 in May to 51 in June, with 51 only slightly lower than data from July 2019.
“This makes two months in a row with strong numbers, and in the favorable categories where the future is starting to take shape,” Chris Kuehl, PhD, economist for the NACM, said.
All four combined favorable factors returned to expansion territory, climbing from 39.5 to 55.3. Sales jumped from 28.6 to 54.1, while new credit applications increased from 43.3 to 57.9. June’s dollar collections at 53.9 and amount of credit extended at 55.2 each improved by more than 10 points.
Meanwhile, the unfavorables increased by less than a point to 48.1.
“The sudden nature of the lockdown recession caught the business and credit community by surprise,” Kuehl said. “Prior to the recession of 2008, there was the usual warning that something threatening was starting to build and most credit managers started to behave more cautiously. They were not offering generous terms to any but their best clients, and new applications were carefully scrutinized. This time, there was abundant confidence at the start of 2020, but there was no time to exercise much caution.”
Rejections of credit applications and disputes each declined in June, falling just shy of staying in expansion territory. Accounts placed for collection was the only factor to decline further into contraction. Dollar amount beyond terms improved by 12 points to 44.4. Dollar amount of customer deductions fell modestly but stayed in expansion territory at 50.6. Filings for bankruptcies remained under 50 but improved slightly to 47.7.
“There is hope that bankruptcy activity will slow as businesses are allowed to start making a comeback,” Kuehl said.
In the manufacturing sector, the sales numbers jumped from 27.5 to 57.8.
“This says it all in many respects,” Kuehl said. “There never was a reduction in real demand, the consumer simply did not have access to goods and services, and therefore spent no money.”
In June, new credit applications, dollar collections and amount of credit extended also improved into the 50s.
On the unfavorables side, “the negative activity doesn’t show up right away given that actions taken by credit managers are triggered by distress,” Kuehl said. “In a more normal recession, there would have been warning signs that would have provoked some caution, but the signs were missing this time.”
Rejections of credit applications, accounts placed for collection, disputes and dollar amount of customer deductions each slipped into contraction territory in June. Dollar amount beyond terms carried the weight, improving from 31.9 to 44. Filings for bankruptcies dipped half a point to 48.8.
The service sector favorables followed a similar pattern. Sales, new credit applications, dollar collections and amount of credit extended all returned to the 50s. Sales were the low point at 50.4, but started at 18.6 in April and 29.7 in May. Rejections of credit applications and accounts placed for collection each declined in June, but the former remained in expansion territory. Disputes increased slightly, and dollar amount of customer deductions remained the same, both in expansion territory. Filings for bankruptcies improved but stayed below 50, while dollar amount beyond terms improved from 33 to 44.9 in June.
“It is still early, and there are still many difficult days ahead,” Kuehl said.
For a complete breakdown of the manufacturing and service sector data and graphics, view the June 2020 report.
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