CMI Suggests Unstable Business Economy

Declining 1.4 points to 51.1, NACM’s January Credit Managers’ Index continues to point to weakness in the business economy. The fluctuation in the CMI suggests that the business economy is experiencing instability rather than a clear downward trend. “The CMI continues to show considerable weakness but without a deliberate trend other than bouncing around just above the contraction threshold,” said NACM Economist Amy Crews Cutts, Ph.D., CBE.

The index for favorable factors fell 2.3 points to 55.4.

• This was led by a 5.3-point drop in new credit applications to 55.1 points.
• Dollar collections declined 2.6 points to 56.1.
• The amount of credit extended factor index declined 0.3 to its lowest level since last August.
• The sales factor index has been the most volatile since the pandemic and is down 8.3 points from its recent high of 62.0 in June.

The index for unfavorable factors deteriorated by 0.8 to 48.2.

• The unfavorable factors recorded its seventh consecutive month below 50.
• Dollar amount beyond terms saw the largest decline, falling 4.6 points to 43.6, a new low for the post-pandemic period and the seventh consecutive month below the 50 threshold.
• Rejections of credit applications led with a rise of 1.6 points to 50.7, its first value in over the expansion threshold in five months.

Manufacturing vs Service Sectors

 The Manufacturing Sector CMI deteriorated 2.7 points in the January survey to a level of 50.8—its lowest reading since May 2020. The Service Sector CMI was unchanged from its December level, standing at 51.4.

 “We are seeing the effects of inflation and monetary policy in business credit markets,” Cutts said. “The Service Sector CMI fell sharply over the summer of 2022 and has continued to hug the 51-point mark since then. However, the Manufacturing Sector CMI has shown more volatility though a smoother general decline since the start of 2022.”

What CMI Survey respondents are saying:

• “We’ve had an increase in year-end sales as companies use up budgets, but a decrease in payments as people take vacations or hang onto cash to make end-of-year balance sheets look better.”
• “We had a very slow December. It was the lowest month of 2023 for sales and down 1% year-over-year.”
• “This was our worst collection month of the last 12 months.”

Sign up to receive monthly CMI survey participation alerts. For a complete breakdown of manufacturing and service sector data and graphics, view the January 2024 report. CMI archives also may be viewed on NACM’s website.

The bottom line: Understanding the fluctuations in the CMI is crucial as they indicate potential instability within the business economy, which can impact credit management decisions and overall financial strategies.