This month’s Credit Managers’ Index (CMI) reading from the National Association of Credit Management (NACM) was 56.1—barely higher than it was in April, but falling well below May’s 56.8. The readings had been closing in on 60 (57.1 in November and 57.3 in January) and are still firmly in positive territory, but are now just not trending in the preferred direction. The services sector took the brunt of the impact, and the manufacturing sector did not budge, for the second month in a row.

After the readings last month, it was thought that the CMI would show continued progress, but the manufacturing sector was flat and the service sector experienced a very sharp decline—enough to drag the index down. “The drop was unexpected, which has suddenly become a common refrain as some other data releases are starting to show similar trends,” said NACM Economist Chris Kuehl, PhD. The economy is clearly not out of the woods just yet, and the latest revision of first quarter GDP came as a shock. “It now appears that the economy contracted by far more than originally reported,” Kuehl said. “Add to this the latest data on durable goods and there is something amiss. Consumer confidence numbers have recovered to levels not seen since the start of the recession, but that renewed level of enthusiasm has not been enough to pull the economy forward, or so it would seem.”

The damage was greater in the unfavorable categories although the favorable factors saw some decline as well. The combined index of favorable factors deteriorated slightly from 62.7 to 62.4, but that is still firmly in the 60 range. The biggest drop was in sales, which went from a several years’ high of 65.6 to 63.9. That is still a reading higher than at any point since November of last year, but after the surge last month, it was hoped the trend would accelerate. Dollar collections dropped out of the 60s, from 61.2 to 59.3 and amount of credit extended also slipped, from 65 to 64.8, but stayed very close to the record highs of late. New credit applications improved and that could be good or bad news. It is now over 60 for the first time since the recession, sitting at 61.5 after 58.9 last month. “The problem is that there were more rejections of credit applications as well,” Kuehl said. “When there are more applicants and more rejections, it is a signal that more companies in financial distress are seeking credit in the hopes that somebody will help them survive.”

The real shifts seem to be taking place in the unfavorable factors, suggesting a certain amount of economic and financial distress. The unfavorable factor index slipped by almost a full point, from 52.8 to 52, but the bigger news was the change in some of the individual factors. Rejections of credit applications shifted from 52.7 to 52, suggesting the existence of more desperate applicants. Accounts placed for collection also shifted a little, from 53.8 to 52.5—a sign that more creditors are falling too far behind to ignore, sparking more collection activity. Disputes slipped under 50 again to 49.5 after being at 50.2 in May. “This is an area of worry for a few months now and is another signal of some financial distress as companies try to change the terms of their arrangements using whatever leverage they can,” Kuehl said. There was also a major dip in dollar amount beyond terms as it slipped below 50 for the first time since December. It is now at 49.6 after being at 51.5 last month. Dollar amount of customer deductions also slipped under 50 for the first time in over two years to 49.4, a full point down from May. Filings for bankruptcies actually improved and is as robust as it has been in some time. The reading this month is 58.9 compared to 58.4 last month. “It will be interesting to see if this reading gets worse in future months as these other categories are now trending badly,” Kuehl said.

For a full breakdown of the manufacturing and service sector data and graphics, view the complete April 2014 report at http://web.nacm.org/CMI/PDF/CMIcurrent.pdf. CMI archives may also be viewed on NACM’s website at http://web.nacm.org/cmi/cmi.asp.