NACM Credit Manager's Index Slips Toward Contraction Territory

The seasonally adjusted Credit Manager’s Index has inched even closer to the neutral economic expansion/contraction point of 50%, creeping down 0.2% to hover at 50.7%. The manufacturing sector index slipped a full percentage point to 50.4%, as only four of its 10 components rose. The service sector index fared better, gaining half a percentage point, rounding out at 51.0% as six of its 10 components rose. All three indexes have six components at or below the 50% level.

“Overall, there were no dramatic changes from July’s report,” said Daniel North, chief economist for credit insurer Euler Hermes ACI, who evaluates the data and prepares the report for the National Association of Credit Management. “However, in both manufacturing and service, dollar collections and the dollar amount beyond terms worsened,” he continued. “The data suggest that tough economic conditions are strangling buyers’ cash flow. Buyers are stretching their payment terms beyond normal and even after that, it appears that they still cannot pay their bills.”

Manufacturing Sector
The seasonally adjusted manufacturing sector index slipped 1.0% in August, leaving six of its 10 components below 50%. “Prices seem to be less of an issue this month in terms of hurting business, but instead they are inflating credit limits and sales,” said North. “Slow pay seems to be the biggest problem.” North noted that a manufacturer of valves and pipes reported, “Customers are looking for ways to slow payments.” A plastics producer replied, “We are having to exert more effort to get payment for receivables,” while a sheet metal firm reported, “We have some of the bigger customers attempting to extend terms.” North said, “On the flip side, international business seems strong, probably due to the weaker dollar, which makes U.S. goods more competitive abroad.” A food manufacturer responded that “international sales are increasing very fast,” a furniture manufacturer noted, ”Our sales are up on the international side,” while a producer of carpeting reported, “…sales to Latin and South America…have increased.”

Service Sector
The seasonally adjusted service sector inched up 0.5% to 51% as six of its 10 components rose. “However, the fact that six components are still at or below the critical 50% value seems to explain the more negative tone of the participants,” said North. “Providers of HVAC and electrical equipment services noted that they are seeing more NSF checks than ever before,” he said. Other survey responses that stood out include a supplier of transportation services that said, “Customers that have never been a problem are going beyond terms.” A repair service stated, “Many customers are expecting us to be their bank!” And reflecting on the “credit crunch,” a participant in the plastics industry reported, “We are seeing more companies close due to lack of bank funding.”

August 2008 vs. August 2007
“On a seasonally adjusted basis, the year-over-year comparisons for both the manufacturing and service sector indexes show a definitive downward trend, reflecting the deterioration in the overall economy,” said North. “All 10 of the components in the manufacturing sector index fell, pushing the index down 4.6% to 50.4%. The service sector hardly fared better as all 10 components fell, driving the index down 4.2% to 51.0%. Both indexes hover just above the 50% dividing line between economic expansion and contraction.”

Methodology Appendix
The CMI data has been collected and tabulated monthly since February 2002. The Index, published since January 2003, is based on a survey of about 800 trade credit managers during the last 10 days of the month, with about equal representation between manufacturing and service sectors. The survey asks respondents to comment on whether they are seeing improvement, deterioration or no change for various favorable or unfavorable factors. There is representation from all states, except some of the less populated such as Vermont and Idaho.

The National Association of Credit Management (NACM), headquartered in Columbia, Maryland, supports more than 19,000 business credit and financial professionals worldwide with premier industry services, tools and information. NACM and its network of Affiliated Associations are the leading resource for credit and financial management information and education, delivering products and services, which improve the management of business credit and accounts receivable. NACM’s collective voice has influenced legislative results concerning commercial business and trade credit to our nation’s policy makers for more than 100 years, and continues to play an active part in legislative issues pertaining to business credit and corporate bankruptcy. More information is available at www.nacm.org or by contacting Caroline Zimmerman at 410-740-5560.

This report and the CMI archives may be viewed at http://web.nacm.org/cmi/cmi.asp.