In April, we noted the NACM's comments that "there are big, big problems" underlying the economy as a surge in unfavorable factors suggested credit conditions were tightening dramatically (only to see that data revised away suddenly). June's data has confirmed this weakness with credit rejections soaring to their highest since 2009 with the biggest spike in 9 years, with NACM CEO Kuehl exclaiming, "There are some obvious signs of distress in the manufacturing community, as the expected wave of consumer demand has yet to manifest... companies that have been awaiting it are getting in trouble with their creditors."

As NACM reports,

“This has been a tale of two directions,” Kuehl noted. “On the one hand, there is some hope for better numbers in the future as the favorables look better than in a long while. However, the present is not so positive, as the unfavorables are worsening, which signals that many companies are not in the shape they would like to be and are falling behind in their obligations.”

5 of the 6 unfavorable factors for Credit Managers weakened dramatically...

Among the unfavorable factors in NACM's credit index, "Rejections" have soared...

The bad news came with the index of unfavorable factors...

The overall reading dove from 51.4 to 49.2, a point not seen in more than a year and a dubious trip into contraction territory for the first time since September’s 49.9.

The sub-readings illustrate the problem. The category of “rejections of credit applications” slid into the contraction at 49.5. That is a dramatic and alarming trend that suggests some in the new applicants pool are far from creditworthy. The category of “accounts placed for collection” traveled a similar path, from 51.6 to 48.3—it’s the first time in the contraction zone in more than three years for the category. “There are some obvious signs of distress in the manufacturing community, as the expected wave of consumer demand has yet to manifest,” Kuehl said. “As such, companies that have been awaiting it are getting in trouble with their creditors.”

And for those who still believe 2015 is on its way to escape velocity (because why else would The Fed think about raising rates)... it's not!

“The year-over-year trend is not encouraging,” Kuehl said. “There has been a distinct downward slide, and it is apparent that conditions were far better in mid-2014 than they are now. That was neither expected nor wanted at this stage of a recovery.”

As Kuehl concludes, rather ominously,

 “The overall sense is that the long-delayed recovery has been taking its toll, as businesses are finding it harder and harder to struggle on."

As we noted previously, despite all the IPO fanfare and claims of liquidity still flowing, the big news is access to credit. It is suddenly very hard to get and this looks like the situation that existed at the start of the recession in 2008. The overall economy didn’t look all that bad in late 2008, except that there was a dearth of credit and that soon led to business failures and struggles.

The pattern is the same whether one is discussing the manufacturing or service side—too many seeking credit that are not going to get what they are seeking—either because there are doubts as to their credit status or because those issuing credit are in a very cautious mood.