Economy Flirts with Recession, CMI Shows

NACM's Credit Managers' Index (CMI) gained 1.8 points to 52.6 in September. The improvement is welcome, but the CMI appears stuck on the precipice of a recession in business activity, said NACM Economist Amy Crews Cutts, Ph.D., CBE.

"Over the first nine months of 2023, the CMI has been bouncing around levels suggesting business activity is about to decline, up one month and down the next," Cutts said. "At present, I think we are balanced in the overall risk of a recession starting in the next few months, but with the delayed risk of a government shutdown, the contagion of employee strikes in several industries and rising oil prices, things could turn quickly to the negative."

The index of favorable factors improved 5.3 points to 58.6, led by a 9.2-point jump in sales, a 6.5-point jump in the amount of credit extended and a 5.4-point jump in dollar collections. The sales index has been the most volatile in 2023 with massive declines followed by equally large improvements each month.

Unfavorable factors fell deeper in contraction territory with a 0.6-point drop to 48.7, marking its fourth consecutive decline. Four of the six unfavorable factors fell in September. The dollar amount of customer deductions fell 3.5 points to 47.4, disputes fell 2.5 points to 47.3 and rejections of credit applications fell 1.1 points to 49.2.

"When supply chains were broken due to the pandemic, we saw disputes rise because no one wanted to pay full price when it took months to get the products or services," Cutts said. "But now supply chains are functioning again and order backlogs are catching up, yet we are seeing a rise in disputes collection referrals. This is indicative of stress on businesses."

What CMI respondents are saying

• "Sales are up due in part to price increases that include an increase in deductions. We have seen a rise in cost of business fees from our customer base simply to continue to do the business with them."
• "Market price for resin is lower and there is increased purchasing by customers."
• "The increase in orders is cyclical. As we approach the holiday season, orders increase. Retailers are impacted as the Fed continues to lower inflation and slow our economy."
• "Supply chain issues are starting to ease. We are shipping lots of backlogged orders. Dealers continue to stock higher levels of inventory."
• "Collections are very good. More customers are paying in advance fully or partially. More payments being made by ACH and credit card. We had needed fewer lien filings."
• "There has been a seasonal pickup in sales with back to school. Sales are improving, but we are experiencing more slowness with smaller, independent food service operators."
• "Most of the increase in volume is attributed to tax-supported schools going back in session. Commercial accounts are stagnant or down and collection woes continue."

Why should you participate in the CMI?

Credit professionals can use the CMI results to make more informed credit decisions and validate their gut feelings. "When I see CMI results saying sales or payments are starting to decline, I know we're going into our slower season," said Cathy Klein, controller at Crystal D (Saint Paul, MN), who has actively participated in the CMI for almost 20 years. "That's when we ramp up our collection calls to stay ahead of the curve."

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 September 2023 report. CMI archives also may be viewed on NACM's website.

-Annacaroline Caruso, editor in chief