June 2, 2022
May CMI Shows Signs of Economic Downturn
Annacaroline Caruso, editorial associate
The May NACM Credit Managers’ Index has begun to show signs of economic distress as the combined score fell 1.6 points to 57.5—slightly higher than its lowest reading for the year registered in January (57.1). Overall, the combined score fell 1.6 points when compared with April (59.1). The drop is a result of high inflation and pervasive supply chain issues, said NACM Economist Amy Crews Cutts, Ph.D., CBE.
“I don’t think we are in a recession yet, but I do feel like we are on the cusp,” Cutts said in a recent episode of NACM’s Extra Credit podcast. “I think businesses are finding themselves caught up in this changeover of consumer demand along with a backlog of supply, and they can’t quite get the right rhythm. Although the combined index is not yet showing that a recession is imminent, economists are rapidly increasing their estimates for the probability that a recession will start over the next 12 months and I think the CMI data backs this trend.”
The combined index of favorable factors dropped 1.8 points (68.1). Every factor within the index fell, with sales seeing the largest decline (3.1 points to 71.6). New credit applications dropped 2.4 points (64.7); amount of credit extended, 1.7 points (70.4); and dollar collections, 0.4 points (65.5). While the declines in the favorable factor indexes are notable, the levels of the indexes still indicate expansionary conditions
However, the combined unfavorable factors fell close to the contraction zone with a 1.4-point loss (50.5). The fall is led by a 7-point loss in dollar amount beyond terms (47.2). Dollar amount of customer deductions fell 1.8 points (48.7), and rejections of credit applications dropped 0.6 points (50.7). Accounts placed for collection saw a 0.4-point gain (51.0), and filings for bankruptcies improved 0.7 points (56.4). Disputes stayed at 49.1.
“The loss of momentum among favorable factors, especially sales, and the huge about-face for the amount beyond terms on the unfavorable factors list indicate to me that we may be at the start of an economic turn,” Cutts said. “There is still some capacity for households to bear the higher cost of living we’re in, but there is limited substitution that can alleviate the pain of higher food and gas prices.”
What CMI respondents are saying:
- “Supply chain issues remain challenging, along with volatile price increases. Collections are fine, with minimal extreme past dues.”
- “We are still facing supply chain issues as well as raw materials issues, and we anticipate this will last a while longer.”
- “Be cognizant that price increases are having an impact on reported results. Three rounds of price increases since last fall and more to come. Sales and collections can increase without actually manufacturing more products. Even credit extension is impacted. Welcome to the world of inflation!”
- “We've had several price increases over the last six months.”
- “Supply chain issues [are] causing multiple production problems.”
- “We are so busy we can't keep up. Our backlog is at least two months out.”
- “Manufacturing levels are trending higher; but due to some constraint in certain raw materials, production is staying on course to not outpace raw material at this time.”
- “Production is still limited by supply chain issues—we are on allocation by our suppliers.”
- “Any customers able to pass on costs to their customers are generally doing very well. The market is active.”
If you would like to participate in the monthly CMI, sign up to receive survey participation alerts. For a complete breakdown of manufacturing and service sector data and graphics, view the May 2022 report. CMI archives also may be viewed on NACM’s website.
It’s Not Too Late to Create an Uncompromising Work Culture
S. Chris Edmonds, CEO, The Purposeful Culture Group
Employees are still quitting jobs at a record rate—and they’re not taking the first job they find. They’re being selective. These employees—of every generation—desire and deserve a workplace where they are respected and validated for their ideas, efforts and contributions every day.
So those players are not taking jobs with organizations that operate by old-school autocratic, my-way-or-the-highway leadership beliefs and behaviors.
Employees seek out organizations where every team member experiences inclusion, involvement and influence over their work and their workplace. When they find roles in those companies, those employees bring their best, proactively solve problems and stay with those companies.
Leaders are taking notice, but too few leaders know how to create a respectful and validating work culture. Start by defining your ideal work culture. Formalize your organization’s servant purpose, a present-day “reason for being” that describes how your organization—and your team—improves the quality of life of customers and communities.
Next, formalize your organization’s core values. Most importantly, for each value, specify two or three measurable behaviors that align with your core values. For example, if “respect” is one of your company’s desired values, what does respect look like in your workplace when it’s done perfectly?
Defining your uncompromising work culture doesn’t mean your work is done. In fact, that’s when the hard part begins: alignment.
Senior leaders must be “chief role models” of your desired culture. They must model, coach, measure, celebrate and mentor your valued behaviors every day. They hold all leaders accountable for doing the same. In an uncompromising work culture, senior leaders do not tolerate leaders at any level who dismiss, demean or discount employees’ ideas, efforts or contributions.
Making your ideal work culture a reality takes time—six months or more of steady modeling, coaching, measuring and more. Only when all leaders consistently model your valued behaviors will employees embrace them, too.
What’s in it for you? When leaders create organizations where respect is as important as results, three things happen: engagement goes up, service goes up, and results go up, by 35% and more over 18 months. We can prove it!
This first appeared in SmartBrief. Reprinted with permission.
S. Chris Edmonds is the founder and CEO of The Purposeful Culture Group. For nearly three decades, industry-leading executives have sought Chris out to help them build and sustain values-aligned cultures that are purposeful, positive, and productive. Chris and his business partner, Mark S. Babbit, are this year’s keynote speakers for NACM’s 126th Credit Congress.
Credit Risk Rebound or a Bump on a Downhill Slide?
Volatility in inflation, interest rates and Eastern Europe has roiled financial markets and the credit risk expectations of market participants. The doom and gloom that prevailed in April was partially lifted in May, which saw Treasury yields fall on six of the last eight trading days in the month.
The Kamakura Troubled Company Index® shows that short term default risk in May recovered half of April’s deterioration. Corporate credit quality improved 11 points to the 88th percentile of the period from 1990 to the present. The 100th percentile indicates the best credit conditions during that period.
The Kamakura Troubled Company Index closed in May at 7.02%, compared to 8.39% in April and 5.08% in March. The index measures the percentage of 41,200 public firms worldwide with an annualized one-month default probability over 1%. An increase in the index reflects declining credit quality, while a decrease reflects improving credit quality.
At the close of May, the percentage of companies with a default probability between 1% and 5% was 5.85%, a decrease of 1.04% from the previous month. The percentage with a default probability between 5% and 10% was 0.78%, a decrease of 0.25%. Those with a default probability between 10% and 20% amounted to 0.32% of the total, representing a decrease of 0.03%. Companies with a default probability of over 20% amounted to 0.07%, a decrease of 0.05% over the prior month.
Among the 20 riskiest-rated firms at the end of May, 14 were in the United States. The riskiest-rated firm was Exela Technologies, with a one-month KDP of 50.22%, up 17.28% from the previous month. Sunac China Holdings Ltd. was the only default in the Kamakura coverage universe in May.
Political Turmoil Surrounds This Year’s Summit of the Americas
Annacaroline Caruso, editorial associate
President Joe Biden is in the final stages of planning an agenda for the week-long Summit of the Americas set to begin next week in Los Angeles. But this year’s summit—meant to bring together leaders from North, Central and South America, and the Caribbean—is shaping up to be a bit different from years past due to global turmoil.
Mexican President Andrés Manuel López Obrador has threatened to boycott if Cuba, Venezuela and Nicaragua aren’t included. But the U.S. considers those three countries authoritarian and has sanctions against them. “Is it going to be the Summit of the Americas or the Summit of the Friends of America? Because if those countries are excluded, what continent are they from? Are they not from the Americas?” Mexican President Andrés Manuel López Obrador said during a press conference Friday.
Mexico is not alone in threatening to skip the summit unless all countries in the Americas are invited. Honduras shares the same view. The White House has yet to announce a final guest list, but the first Summit of Americas to take place since before the pandemic began could be undermined without attendance of major economies. “Without these leaders’ participation, agenda items like a regionwide agreement on migration and efforts to combat climate change and the economic and social impacts of COVID-19 are in doubt,” reads an ABC News article.
The U.S. reaffirmed its position to not invite Venezuela or Nicaragua, but is considering inviting Cuba. It also is unclear if López Obrador, known by his initials AMLO, will uphold his stance or attend the summit anyway. U.S. officials have been meeting with AMLO in attempts to secure his attendance. Officials were successful in convincing Brazilian President Jair Bolsonaro to attend, per the Associated Press.
Regardless of who shows up, some feel the tension between the U.S. and other leaders in the Americas has already been highlighted. “Whether or not a widespread boycott of the summit ultimately materializes, the stresses in U.S.-regional relations will have been exposed in an unflattering light,” Michael McKinley, who served as U.S. ambassador to Brazil, Colombia and Peru, wrote in an opinion piece for the U.S. Institute of Peace.
Fifteen House Democrats, led by House Foreign Affairs Committee chair Gregory Meeks, also expressed concern in a letter to Biden last week. “We feel strongly that excluding countries could jeopardize future relations throughout the region and put some of the ambitious policy proposals your administration launched under Build Back Better World at risk” they wrote.
The importance of next week’s meeting stretches beyond the relationships and trade agreements between the U.S. and other countries in the Americas. Many fear that China’s influence is growing in the region, and the summit would be a way for the U.S. to reinforce its relationships. “A hollow summit would undermine efforts by the U.S. to reassert its influence in Latin America when China is making inroads and concerns grow that democracy is backsliding in the region,” reads another AP News article.
Credit Congress Spotlight Session: Take Your Game
to the Next Level—Using Emotional Intelligence to Advance Your Career
Speaker: Jake Hillemeyer, Dolese Bros. Co.
Duration: 60 minutes
Credit Congress Spotlight Session:
When and If to Help a Distressed Customer
Moderator: Chris Ring, Speakers: D'Ann Johnson, CCE, A-Core Concrete Cutting, Inc. and Eve Sahnow, CCE, OrePac Building Products
Duration: 60 minutes
Get Yourself Ready for 2024: Goal Setting and Future Planning
Speaker: Hailey Zureich, zHailey Coaching
Duration: 60 minutes
Mastering Mechanic's Liens in Iowa: Distinguishing Commercial, Residential and Public Projects
Speaker: Chris Ring, NACM’s Secured Transaction Services
Duration: 60 minutes