PR - NACM Credit Manager?s Index Flat in February, But Weakness Shows

The seasonally adjusted Credit Manager’s Index (CMI) remained unchanged in February, breaking a streak of five consecutive declines. A rise of 1.5% in the manufacturing index was offset by a decline of 1.6% in the service index. However, the dollar collections component in manufacturing distorted the totals, soaring 10.2%, the second highest jump ever. “Without that component,” said Daniel North, chief economist for Euler Hermes ACI, “manufacturing would have only risen 0.6%, and the combined index would have actually fallen into negative territory at -0.4%.”

Five of the components in the combined index are now below the 50 level which would indicate economic expansion, tying the record set in November of last year. Six of the 10 combined components fell. “Perhaps most noteworthy,” North added, “the service index has fallen below 50 for the first time.”

“Overall, the combined index tells a story similar to the one we have been seeing for some time: a slow erosion of the combined index with more weakness in services than in manufacturing,” said North. “The performance of the macroeconomy continues to be dismal, and it is quite likely that a recession has already started.” The 49.5% reading in the service index clearly shows contraction and reflects the weakness of the overall economy. “In response, the Federal Reserve has slashed interest rates and will continue to do so in order to stimulate the credit markets and the macroeconomy,” said North. “However, Fed actions take six to 12 months to become fully effective, so this aggressive rate cutting is simply too late to prevent a recession, although it will help get the economy out of a recession sooner, perhaps as early as the end of this year.”

The seasonally adjusted manufacturing sector index eked out a gain of 1.5% in February, largely driven by a huge increase of 10.2% in the dollar collections component. Without that component, the total index would have risen only 0.6% suggesting somewhat weaker conditions than the headline number indicates.

“It’s no surprise that once again the housing market is held up as the cause of most respondent’s woes,” said North. But reports from other industries, such as sign makers, say, “We’re starting to see a downturn in new business.… now looking for new work. We’ve had to start laying off workers…” A California participant wrote that the “number of businesses closing their doors is increasing in my area.” “But on the bright side, several food companies noted strong improvement in international business, no doubt due to the weaker dollar,” North added.

The seasonally adjusted service sector index fell 1.6% in February. Seven of the 10 components fell, suggesting widespread weakness, and the total index fell to 49.5%, below the 50% level, indicating economic contraction.

“As has been the case for months now, the majority of the respondents making comments pointed their fingers directly at the housing market as the source of their woes,” said North. Other industries are now chiming in as well. A provider of computer programming services reports that “payments have radically slowed.” A petroleum service provider said the “trucking industry is suffering due to high fuel prices…big slowing in payments this month.” Finally, a lumber mill manager noted, “I have filed more liens this last couple months than the whole five-and-a-half years I have worked here.”

On a seasonally adjusted basis, nine of the 10 components in the combined Credit Manager’s Index have fallen, driving the index down 4.1%. The manufacturing sector dropped 2.3% as eight of its components fell, and the service sector also had eight components fall, sending the index down 6.1%. “Overall, on a year-over-year basis, the data clearly reflects the slowing business conditions experienced by the broader economy,” said North.

The entire release can be viewed at http://www.nacm.org/resource/press_release/CMI_current.shtml.