Despite this being the holiday season, the Credit Managers’ Index (CMI) was not as generous as credit professionals had hoped, ending a solid 2018 on a sour note. Credit professionals reported a large drop off in the combined favorable factors, with all four components seeing a decline.

Credit professionals reported fewer sales and new credit applications in the December 2018 economic report from the National Association of Credit Management, but the declines in the favorables should be taken with a grain of salt as they are all still well within expansion territory.

"On one level, this is disappointing. It would have been nice to see the index continue tracking upwards, but it is important to remember that any reading over 50 suggests growth, so (an overall December) reading of 54.2 is certainly respectable," said NACM Economist Chris Kuehl, Ph.D.

That is a decline of 1.6 points from November, moving the CMI to numbers seen in October. Sales took the biggest hit, a drop of 5.5 points. That leaves it outside the 60s for the first time since December 2017. New credit applications and amount of credit extended also stepped back at 57.5 and 61.9, respectively. Dollar collections, while it declined, still hovered near a reading of 60. Overall, favorables sank from 63.2 to 59.4 in December, also the first time since last December the score was below 60. “The slide in all these factors suggests there has been a slowdown, which is consistent with some of the other data that has been seen in the Purchasing Managers’ Index, durable goods orders and capacity utilization,” Kuehl said.

The future was a little bit brighter for the combined unfavorable factors—not all saw a dip in December. Rejections of credit applications remained the same at 51.4, while accounts placed for collection and dollar amount of customer deductions improved yet stayed in contraction territory (score below 50). Disputes and dollar amount beyond terms each took a dive into contraction territory at 49.6 and 49.3, respectively.

“This drop is more worrisome, as this is often the first sign of impending credit issues,” said Kuehl, referring to dollar amount beyond terms. Bankruptcy filings remained one of the more constant factors, improving to 55. The overall index of unfavorables remained above 50 for the second straight month after a slight dip below 50 in October.

The manufacturing sector followed a similar pattern as the overall CMI.

“The sector is often seen as a kind of symbol for the overall success of the U.S. economy,” Kuehl said. “The numbers look a bit weaker in December, which is a bit worrying for the coming year.”

The manufacturing index declined 1.6 points to a reading of 54, impacted by the large drop in the favorables. Manufacturing sales also fell below 60 for the first time since December 2017, and the favorable index was hurt by it with a decrease to 58.9. All but amount of credit extended fell below 60. The manufacturing unfavorables were a different story, increasing further into expansion albeit at a rate of 0.2 points to 50.7. Accounts placed for collection, dollar amount of customer deductions and filings for bankruptcy each improved this month. Credit application rejections, disputes and dollar amount beyond terms slipped slightly—the latter hitting a reading of 50 and staying in expansion territory for two months in a row for the first time since fall 2016.

The service sector showed comparable results to that of the overall index and manufacturing sector. Sales, along with the rest of the favorables, were down, dragging the favorable index to 59.9—the same level as December 2017. Rejections of credit applications returned to expansion territory after a dip in November. Accounts placed for collections and bankruptcies also improved, with the former still in the contraction zone but only slightly at 49.1. Disputes dropped modestly, and dollar amount of customer deductions also fell, yet both stayed above 50. The overall sector index saw a decline of 1.5 points to 54.5.

Compared to 2017, Kuehl said, “There are some early warnings starting to show up as the favorables are sagging for the first time in a year. At this point, the reason could be seasonal, but if the trend extends to next month, there will be more concerns about the coming year.”

For a complete breakdown of the manufacturing and service sector data and graphics, view the December 2018 report.