WASHINGTON (MNI) – The following is the National Association of
Credit Management’s summary of its report on credit for May, published
Thursday:

“Spring Swoon” Weighs on NACM’s Credit Managers’ Index for May

The National Association of Credit Management’s CMI report for May
2012 confirms another spring slump, but a third stagnant summer is not
yet a certainty.

It can now be said that the economy has experienced a third
straight year of “spring swoon.” In 2010 this was provoked by a
premature recovery that made the first quarter look stronger than it
really was, and the 2011 culprits seemed to be the supply chain
disruption from the earthquake in Japan, as well as the Arab Spring’s
impact on oil prices. What seems to be the problem in 2012? One
explanation holds that the European crisis has become this year’s “black
swan” as it has affected everything from banks to exports. A second
opinion contends there is nothing really wrong with the economic
recovery, but that industry is just taking a breather. A third holds
that the consumer is hibernating again as they react to everything from
high jobless numbers to inflation.

The latest Credit Managers’ Index lends some support to all three
scenarios, but mostly the data underpins the sense that consumers are in
retreat. This is not necessarily bad news, as the consumer can come back
to life under the right conditions. The overall CMI slipped again in May
and is now sitting at levels last seen in January of this year and about
where the CMI was a year ago. “The gains made in the last year have
largely been erased, and now the question is whether there will be a
swift and significant comeback,” said Chris Kuehl, PhD, economist for
the National Association of Credit Management (NACM). “The drop from
55.1 in April to 54.6 in May is not quite as steep as the one from 56.2
in March to 55.1 in April, but the decline is worrisome nonetheless.”

If there are silver linings in this month’s report it is that
favorable factors did not change much-the favorable index retreated from
60.5 to 60.2. Sales data actually improved from 60 to 61.2, but remains
off the pace set earlier in the year when sales hit 64.4. Even better
news came from new credit applications, which rose from 58.2 to 59.9.
The retreat, and the bad news, was due largely to the decline in the
amount of credit extended-down from 64.6 to 61.3. Part of that decline
can be attributed to less credit being requested, and more of those
asking for credit being denied.

May’s data indicated more turmoil in the index of unfavorable
factors compared to April’s slight shift, said Kuehl. “As suggested last
month, the majority of the business community lacks the flexibility to
handle many weeks of downturn before there are problems, and this
month’s unfavorable factors show that this is the case,” he noted.
Dollar amount beyond terms fell into contraction territory from 50 to
48, as did disputes, which fell from 50.7 to 49.4. Most factor numbers
dropped a little, but a big change in dollars beyond terms often signals
more issues to come. In the end, the total index of unfavorable factors
slid from 51.6 to 50.9. This is not catastrophic, as this is close to
where the readings have been for the past year, but there had been hope
of some serious recovery gains by this point, not a reversal. At 50.9,
the unfavorable factor index is less than a point from sliding into
contraction territory-a place the index has managed to avoid since
October 2011.

“The sense of the index for this month is that nothing has
developed to perk the economy up, but neither is there evidence of an
imminent crash,” said Kuehl. “The gains made in the first few months
have proven to be more ephemeral than expected and many have concluded
that 2012 will not break the ‘spring swoon’ pattern. The next challenge
is to determine if this will be a long and difficult summer as in both
2011 and 2010. Nobody seems quite ready to make that declaration just
yet.”

** MNI Washington Bureau: 202-371-2121 **

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