The Credit Managers’ Index from the National Association of Credit Management signals a slow start to 2022.
Although 2021 ended with its strongest December reading for NACM’s Credit Managers’ Index since its inception, January’s combined score took a 1.8-point fall to 56.9 month on month. The drop indicates a slow start to 2022, but the score remains stronger than pre-pandemic readings, said NACM Economist Amy Crews Cutts, Ph.D., CBE. “Kicking off the new year, the combined CMI continues to reflect some of the best credit conditions of the past two decades.”
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The index’s monthly volatility is most likely due to the spike in COVID cases’ effect on the labor supply, and global supply-chain and logistics issues that continue to plague commerce, Crews Cutts added. “None of these issues has easy or quick solutions, and thus 2022 is likely to be another wild ride for businesses. Inflation is rearing its ugly head as insufficient supply is up against strong demand and those who are willing are paying high prices to get desired goods or services today.
“Producers are having to choose which items to deliver, and the choice seems to be tilting more and more to higher-margin, higher-priced lines, exacerbating inflation perceptions among consumers,” Crews Cutts explained. “In addition, high demand globally is driving up input commodity prices, leading to pricing uncertainty in the delivery of finished goods. The Federal Reserve Board of Governors may feel compelled to reverse some of the monetary easing done in the early months of the pandemic, but this is unlikely to have a material impact on inflation or demand, at least initially. However, we may soon start to see effects from the ending of the child tax credit advance payments in December, one of the last large fiscal stimuli directed at households.”
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This robustness, and volatility, in the combined CMI is dominated by contributions from favorable factors in the index—which fell this month to 65.2 from 69.2. The readings for the unfavorable factors also declined, but by a smaller margin, from 56.9 from 57.8.
New credit applications lost the ground it gained in December and took the steepest hit with a 7.2-point drop to 60.2, its lowest reading since May 2020. Sales fell 3.8 points (71.3); dollar collections dropped 1.1. points (62.4); and amount of credit extended fell 4.7 points (67.0).
The index of unfavorable factors fell just 0.2 points to a reading of 51.4. Accounts placed for collection fell one point (51.1); filings for bankruptcy fell 0.6 points (55.0); and rejections of credit applications saw a 0.2-point drop (51.5). Dollar amount beyond terms gained one-tenth of a point (53.0). Customer disputes and dollar amount of customer deductions both remain in contraction territory, despite gaining three-tenths of a point (48.5) and one-tenth of a point (49.5), respectively.
The last time customer disputes and dollar amount of customer deductions were in the expansion zone was September. These readings likely reflect supply-chain issues for the last four months, Crews Cutts explained. “The reason these two categories remain below a reading of 50 may be driven by delivery problems related to supply-chain and labor-supply issues driving clients to demand some concessions.”
Several CMI respondents emphasized the negative impact supply-chain backlogs are having on their sales numbers. “We are still feeling the pain of the supply chain [and] raw materials disaster, and I have been told it will last for several more months,” wrote one respondent. “Demand is there for our product; we just don’t have any inventory.”
Dr. Crews Cutts has joined NACM as its new economist. She is a nationally recognized thought leader and chief economist focused on providing strategic economic analysis rooted in practical business terms. She is the president and chief economist of AC Cutts & Associates LLC and also serves as the chief economist for Bright Query LLC.
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