Many companies are on the brink of financial trouble, and could fall further if the economy continues to stall.
Sure, the economy is showing some signs of strength. According to the Department of Labor, the economy added 165,000 nonfarm jobs during the month of April and unemployment dropped to 7.5 percent, a four-year low. Moreover, revisions to the February and March numbers revealed that the economy added 114,000 more jobs during this time than initially thought. More Americans – 1.65 million more – are working today than 12 months ago.
In addition, business bankruptcy filings stood at 37,552 for the 12-month period ending in March 2013. That compares to 46,393 for the same period a year earlier, and is the lowest level since 2008, when it registered 30,741, according to information from the U.S. Bankruptcy Courts.
The picture isn’t entirely rosy, however. The Credit Managers’ Index, based on a survey of about 900 trade credit managers, dropped to its lowest level in more than 16 months, the National Association of Credit Management (NACM) reports. “The reading is still in expansion territory, but it is certainly heading in the wrong direction,” the report states.
In the survey, credit managers assess any movement they’re seeing in both favorable and unfavorable factors. Among the favorable factors: sales, new credit applications and dollars collected. The unfavorable factors include disputes, dollar amounts beyond terms and bankruptcy filings.
One favorable factor showing positive movement was sales, which increased from 57.4 to 58.3. However, that’s still slightly lower than a year ago, when it was at 60.
The largest drop in favorable factors was in the amount of credit extended, which decreased from 61.6 to 60.8. At the same time, the fact that this remains above 60 is significant, and indicates that “plenty of companies are extending credit to creditworthy applicants,” the NACM reports.
Overall, the favorable factors section of the Index dropped slightly, from 58.4 to 58.2.
Movement in the unfavorable factors had a more significant negative impact on the Index. One of the largest drops occurred in dollar amount beyond terms, which fell from 51.2 to 47, signaling that many companies have entered “the danger zone,” NACM says.
A sizeable decline in the dollar amount of customer deductions – from 49.9 to 46.8 – indicates a further movement into contraction territory. More companies are on the brink of trouble, and could fall further if the economy continues to stall, NACM states.
In total, the mix of unfavorable factors fell from 51.4 to 50 between March and April.
Given the mix of news about the economy, it’s probably not surprising that a recent survey of CFOs by Robert Half found most focused on both cutting costs and expanding their businesses. Nearly two-thirds indicated that controlling expenses was a somewhat or very high priority for the year, while slightly more than half said the same for business expansion.