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Economy on the Brink of Another Slump?

A leading credit index slides for the first time in five months, provoking concerns the economy will retreat for the third time in as many years.

by Staff
May 1, 2012
3 min to read


COLUMBIA, MD. — The main gauge of how credit managers feel about the economy dipped after five straight months of gains. Up until April, the index had been the one economic bright spot for much of the year.

The Credit Managers’ Index, which is created from a monthly survey of credit and collections professionals, slipped to 55.1 from a March reading of 56.2. The decline wasn’t drastic and the CMI, excluding February and March readings, still remains higher than it has since April 2011 when the index stood at 55.8.

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“April has not been a month to write home about, and for the last few weeks, analysts have been trying to decide whether the economy is on the edge of another spring swoon, which would repeat the slide from this time in 2011 and 2010,” read the report. “A lot of the factors are not the same as they were in either of these years, but the data that emerged in the last week did not inspire much confidence or enthusiasm.”

The report went on to list slowing job growth and an uptick in layoffs as the partial reasons for the drop in the index. The latest durable goods orders are also not looking good and there was some pretty gloomy prognostication coming from the Federal Reserve, the report added.

The decline in the CMI is consistent with other data released in recent weeks. The numbers are not suggesting an imminent crisis, and nothing that approaches the return to recession being seen in Europe. However, the decline indicates that the robust growth that started the year has faded somewhat, provoking concerns the economy will start to retreat for the third time in as many years.

“There has been nothing as dramatic as last year’s earthquake in Japan that destroyed the global supply chain or the Arab Spring that resulted in massive political change in the Middle East and much higher oil prices,” said Chris Kuehl, economist for the National Association of Credit Management (NACM), which polls credit and collections professionals for the CMI. “Spring 2012 did feature tensions in Iran sufficient to force the price of oil up for a while, and the financial crisis in Europe has had almost as much impact on the global economy as the disaster in Japan.”

The index of favorable factors fell from 62.5 to 60.5. Sales had the biggest change, falling to 60, a level not seen since November 2011 when it stood at 58.3. “A drop of 4.1 points is not insignificant and that is taking place at a time when the retail numbers have been adequate in the country as a whole,” said Kuehl. “The slide in sales tends to coincide with what has been reported as far as durable goods orders are concerned.”

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Favorable factors declined almost across the board, including dollar collections, which fell from 61.4 to 59.3. New credit applications also slipped from 60.4 to 58.2, but there was some good news in the amount of credit extended, which rose from 63.9 to 64.6. “At first blush, it seems businesses are cautious and not requesting as much credit, but those that are have been met with a willingness to extend,” the report read.

The index of unfavorable factors fell as well, from 52 to 51.6. But the drop was not quite as dramatic as with favorable factors. The biggest decline was in dollar amount of customer deductions, which dropped from 51.1 to 50.4. Other categories improved, though. Rejections of credit applications rose from 50.6 to 51.6, reinforcing the notion that creditworthy companies are still accessing credit. By and large, there was not all that much movement in unfavorable factors.

“The good news is that all the readings are still above the 50 mark denoting expansion, but the bad news is that there are several factors with readings between 50 and 50.7,” said Kuehl. “It is a very fragile situation and it will not take much to push these numbers into contraction territory.”

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