Manufacturing Bucks Trend In Latest CICM UK Credit Managers’ Index
The Manufacturing Sector continues to drive business confidence and the outlook for growth, according to the latest quarterly barometer from the Chartered Institute of Credit Management (CICM).
Overall economic confidence has fallen, however, especially in the Services Sector, and the combined figures for the first quarter of this year (Q1 2016) do not take into account the recent turmoil within the UK Steel industry or the commotion over Brexit.
The CICM’s Credit Managers’ Index (CMI) also appears to contradict the Purchasing Managers’ Index (PMI) for the same period that suggests both Manufacturing and Services are on an even keel.
The CMI, sponsored by Tinubu Square, is important because it gauges nationwide levels of credit being sought and granted by credit managers across both the Manufacturing and Services sectors, acting as a primary indicator of actual levels of business being conducted.
Results for Q1 2016 show that the headline index has fallen by 1.4 points to 56.6, driven by 2.2 drop in the Services index that now sits at 55.6. The Manufacturing index, however, has increased by 0.3 to 59.0, contradicting the PMI which put manufacturing at a three-year low as it closed down to 49.3 in April
Yet there is some good news with the CMI: all three ‘favourable’ factors (credit sales, new credit applications and the order books) improved; perhaps as a direct result, each of the seven ‘unfavourable’ factors worsened for the second quarter in a row, with bad debt provision and rejected credit applications especially impacted.
The survey also found that on average 41-hours a month were being spent preparing internal management reports, according to credit managers. Based on the salary of a two-year qualified accountant, this equates to over £10,000 a year spent on reporting, suggesting that many are still using manual, rather than ‘push of a button’ automated reporting.
On Brexit, two-thirds (68%) of credit managers reported that they didn’t believe the outcome of the EU referendum vote would impact the credit terms they receive or are granted on behalf of their companies.
Philip King says the results are ominous for the next quarter: “I previously questioned the flat headline result at the end of 2015, and unfortunately the Index has taken a turn for the worse. It may continue to fall once the impact of current uncertainties regarding steel and the future of the EU are felt.”
Michael Feldwick, Head of Tinubu Square in the UK added: “The next few months are going to be a particularly nervous time for the British economy, as the EU referendum debate reaches its conclusion and the after-effects are felt. The critical thing for credit managers, is to ensure they are doing everything they can to control credit exposure in this uncertain environment.”
Despite this fall in business confidence, every region reported ‘Green light’ results – above a 52-point benchmark – with particular improvement in Scotland. Only two of 20 industry sectors (Retail and Basic Resources) reported contraction.
“Again, the retail result is not taking into account recent high street chains entering administration,” Philip continues. “However, it is good to see the regional and sector heat maps are, for the most part, showing positive results.”
The CMI is a diffusion index, producing ‘scores’ of between one and 100 (typically in a range of 40 – 60). Ten equally weighted factors are included – three favourable and seven unfavourable – and the index is calculated on a simple average of the 10 factors. All favourable factors have improved in this latest round of results; all unfavourable factors have worsened.