Credit Managers Sound Alarm on Poor Account Performance in NACM’s November CMI

NACM’s Credit Managers’ Index (CMI) remains in a narrow range around non-recession lows as it gained 1.1 points to 52.3 in November. However, credit managers are growing increasingly concerned about the state of the economy, citing more delinquent accounts, poor application quality and more bankruptcy filings.

“While the impacts of the Fed’s aggressive effort to stamp out inflation have been slowly making their way into the economy, we have not yet seen much indication that a recession is immediately around the corner,” said NACM Economist Amy Crews Cutts, Ph.D., CBE. “However, in a marked change from recent prior months of the CMI survey, credit managers are sounding the alarm on account performance, ranging from more accounts delinquent, poor application quality, and more bankruptcies.”

The index of favorable factors gained 2.5 points to 58.0, led by a 3.5-point improvement in dollar collections to 59.4, a 3.4-point jump in sales to 58.7 and a 2.0-point increase in new credit applications to 55.9. The amount of credit extended factor index marked its second month of deterioration.

The index of unfavorable factors also improved—but just slightly by 0.4 to 48.5, remaining in the contraction zone. Three of the factors deteriorated in November; filings for bankruptcies led the decline with 2.6 points to 47.8—its lowest reading since June 2020. “The U.S. Courts reports filings of bankruptcies and year-to-date through September their data show a 39% increase in business bankruptcies over 2022,” Cutts said. “While the level is not yet fully back to pre-pandemic, it won’t be long before business failure surpasses that mark at this rate.”

Accounts placed for collection deteriorated by 1.0 point to 44.6, its 18th month below 50 points, the lowest level recorded for this factor index. Rejections of credit applications declined 1.0 point in the November CMI survey to a level of 48.7, the third consecutive month of decline for this index.

“It’s almost like a switch was flipped in the comments provided by survey respondents,” said Cutts. “We went from a gradual subsiding of comments regarding supply chains and then this month they all aligned on worry about account performance.”

What CMI respondents are saying

• “The prevailing consumer attitude of wait and see along with the instability of the U.S. government to effectively manage the budget process and rate hikes are creating some dark clouds on the economic horizon. As the cost of money increases, past dues and beyond terms will inevitably grow as companies stretch payables to conserve cash.”
• “I think the economy is going into a recession and I’m concerned it will be a deep one.”
• “We have been greatly affected by automobile strikes and production is scheduled for shutdowns in December.”
• “We are seeing bankruptcies and business closures on the rise.”
• “Although sales went up, the increase was a bit disappointing for our organization in that October is typically one of our largest months of the year. Delinquencies and accounts turned over to collections continues to rise.”
• “Our over 90-days past due increased.”
• “As is the usual this time of year, companies that have maxed out their normal credit lines are searching for someone to carry them through the winter months. That is why the credit application denials are up.”
• “We are a cyclical business. Commercial and retail sales are strong because we depend on a strong housing market and low interest rate for home buyers to have discretionary spending. Also, high inventory is still an issue from the pandemic together with a late season, slower sales creating cash flow issues for our customers.”

Why should you participate in the CMI?

Complete the CMI every month for the next 12 months and automatically be entered into a drawing to win a gift card worth between $100-$250 in 2024. Sign up to receive monthly CMI survey participation alerts. For a complete breakdown of manufacturing and service sector data and graphics, view the November 2023 report. CMI archives also may be viewed on NACM’s website.