We are grateful to Alexander Giryavets at Dynamika Capital for pointing us to something which is far more troubling than even the Atlanta Fed’s collapse in Q1 GDP tracking: namely the latest Credit Managers Index for the month of March which “deteriorated significantly over the last two months and current readings stand at the recessionary levels not seen since 2008.”
To be sure, we have previously shown the collapse in consumer debt as reported by the Fed, which as we noted, just suffered its worst month for revolving credit since December 2010 and explains “why the consumer has literally gone into hibernation – it has nothing to do with the weather, and everything to do with the unwillingness to “charge” purchases, which in turn is a clear glimpse into how the US consumer sees their financial and economic future.”
It turns out it may not have been just a matter of demand: apparently something very dramatic has been happening in February and especially in March. Instead of spoiling the punchline, we will leave it to the National Association of Credit Managers to explain what happened:
From the latest NACM Credit Managers Index:
We now know that the readings of last month were not a fluke or some temporary aberration that could be marked off as something related to the weather. There is quite obviously some serious financial stress manifesting in the data and this does not bode well for the growth of the economy going forward. These readings are as low as they have been since the recession started and to see everything start to get back on track would take a substantial reversal at this stage. The data from the CMI is not the only place where this distress is showing up, but thus far, it may be the most profound.
You mean it wasn’t the weather? “As was the case last month, the majority of the damage was seen in the service sector and this month it is going to be hard to blame it all on the weather or some other seasonal factor.”
Ok, good to know that we were correct in mocking all those “economisseds” who say the recent collapse in seasonally-adjusted (as in adjusted for the seasons… such as winter) data was due to the, well, winter, a winter in which 3 of 4 months were hotter than average!
So what is going on? Well, nothing short of another recession it appears.
The combined score is getting dangerously closer to the contraction zone and has not been this weak in many years (going back to 2010). It is sitting at 51.2 and that is down from the 53.2 noted last month. For most of the last two years, these readings have been in the mid-50s and above—comfortable territory and generally trending up from one month to the next and now there is a very disturbing trend downward. The index of favorable factors slipped substantially, but remains in the mid-range at 55.4. That would be seen as better news if it were not for the fact that these readings had consistently been in the 60s during the last couple of years. It was only August of last year when the reading was a robust 63.8. The most drastic fall took place with the unfavorable factors that indicate the real distress in the credit market. It has tumbled from 50.5 to 48.5 and that is firmly in the contraction zone—a place this index has not been since the days right after the recession formally ended. The signal this sends is that many companies are not nearly as healthy as it has been assumed and that there is considerably less resilience in the business sector than assumed.
Of course, in a world in which the only economic growth comes as a result of new credit entering the economy (as opposed to Fed reserves being stuck in the S&P), the only thing that matters is how easy it is to get credit into the hands of those who need it. As it turns out it has never been more difficult to get credit.
According to the CMI, the Rejections of Credit Applications index just crashed the most ever, surpassing even the credit crunch at the peak of the Lehman crisis.
And the stunner:
The rejections of credit applications is as miserable as it has been since the depths of the recession—going from 45.9 to 42.0.These are very bad readings and it will take a good long while to climb out of this mess.
No other commentary necessary.
Full article: “There Are Big, Big Problems” – The Shocker Crushing The Economy Revealed (Zero Hedge)