Risk

Business Credit Indicators Slip

A deterioration in business credit conditions in March does not bode well for the U.S. economy, says the NACM.
Katie Kuehner-HebertMarch 31, 2015
Business Credit Indicators Slip

There is “some serious financial stress” manifesting itself in the data culled from credit managers, says the National Association of Credit Management. The NACM’s March report of the Credit Managers’ Index shows some deterioration in business credit conditions, a signal “that does not bode well for the growth of the [U.S.] economy going forward,” the NACM said.

The Credit Managers’ Index posted a reading of 51.2 for March, down from 53.2 in February. After hovering in the mid-50s and above for the past two years, the index is moving “dangerously close to contraction zone,” the association said. (Contraction is a reading of below 50.)

“We now know that the readings of last month were not a fluke or some temporary aberration that could be marked off as something related to the weather,” NACM Economist Chris Kuehl said in a press release. “These readings are as low as they have been since the recession started and to see everything start to get back on track would take a substantial reversal at this stage.”

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The index of favorable factors, like business sales, new credit extended, and dollar collections, dropped to 55.4, while the unfavorable factors, such as disputes and accounts placed for collection, “fell” to 48.5 from 50.5 — “a place this index has not seen since after the end of the recession,” said the NACM. (When credit managers report an increase in unfavorable factors, index numbers drop.)

“The signal this sends is that many companies are not nearly as healthy as it has been assumed and that there is considerably less resilience in the business sector than assumed,” Kuehl said.

The “most disturbing drop,” the NACM said, happened in the “rejection of credit applications” category, which fell from 48.1 to an even weaker 42.9. “This is credit crunch territory — unseen since the very start of the recession. Suddenly companies are having a very hard time getting credit,” the NACM said.

In other unfavorable categories, accounts placed for collection fell to 49.8, disputes improved slightly to 49, dollar amount beyond terms fell to 45.5, and dollar amount of customer deductions dropped to 48.7.

“The year-over-year trend remains miserable and seems to be getting worse and thus far nearly all the blame can be laid at the feet of credit access,” Kuehl said. “There is just not a lot of confidence in those that are doing the credit offerings these days.”

The data for the Credit Managers’ Index has been collected and tabulated monthly since February 2002. The index is based on a survey of approximately 1,000 trade credit managers in the second half of each month, with about equal representation between the manufacturing and service sectors, the NACM says.

Image: Thinkstock

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