After a year of both positive and negative month-to-month changes, the Credit Managers Index (CMI) inched up to 54.4 in December, its highest level since May. (Numbers higher than 50 indicate expansion; numbers below 50 indicate contraction.)
However, the Index remains below the level of a year ago, when it was at 55.8. The Index incorporates ten factors, including sales, new credit applications, bankruptcy filings and accounts placed for collection, and covers both manufacturing and service industries. The CMI is calculated by the National Association of Credit Management (NACM) in Columbia, Md. The index is based on responses from about 900 trade credit managers, about evenly divided between manufacturing and service organizations.
On the positive side, sales, dollars collections and the amount of credit extended all increased during the month, although none matched their yearly highs. Still, dollar collections actually jumped nearly 8%, rising from 56.9 to 61.4. Both sales and the amount of credit extended rose by less than 4%.
Among unfavorable factors that grew, albeit slightly, were accounts placed for collection, dollar amounts beyond terms, and disputes. Accounts placed for collection and dollar amounts beyond terms both rose about 1%. On a more positive note, bankruptcy filings dipped by about the same amount.
Perhaps not surprisingly, given the time of year, the service sector showed stronger growth than the manufacturing sector in December, driven by retail. "The sector grew much faster than manufacturing, to the strength of the retail segments of the index," says NACM economist Chris Kuehl.
In fact, the service sector has slightly outperformed manufacturing for most of the year. While the manufacturing sector CMI has stayed between 52 and 56.5 this year, the retail sector CMI has done slightly better, fluctuating between 53.3 and 56.7. As of December, the manufacturing CMI was at 53.2, or about 4.7% lower than the service CMI of 55.7. "In general, it can be said that many companies remain in distress, and this doesn't bode well for the coming months when there will be no boost from holiday spending," Kuehl says.
Even so, a number of factors overall remain below what's considered truly expansionary. For instance, the rejection of credit applications remains below 50, at 49.5. The index for accounts placed in collection also is at 50 – again, just making it into expansion territory. Overall, the year's performance wasn't as strong as most would have liked. "There is some concern about the length of time the index has been resting in the middle ground between expansion and contraction," according to the report.
The hope for 2012 is that at least some components of the index move closer to 60, and solidly into expansion territory.