May CMI Shows Signs of Economic Downturn

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.

-Annacaroline Caruso, editorial associate