PR - NACM Credit Manager's Index Slides in October

The seasonally adjusted Credit Manager’s Index (CMI) fell 1.0% in October as half of the 10 components fell. While the decrease was modest, it drove the CMI to its lowest level since February of 2003. Both the manufacturing and service sectors declined and in both, the largest single drop by far was in the dollar amount beyond terms component. For the combined index this component fell sharply by 6.9%.

Euler Hermes ACI Chief Economist Daniel North summarized the results saying, “The data suggest that our respondents’ customers are having difficulty coming up with enough cash to pay their bills on time. This condition could be a result either of their own customers’ inability to pay on time, or perhaps because they have built up too much inventory which hasn’t sold as quickly as planned. Whatever the origin of the problem, it probably reflects the weakness in the economy that is likely to turn worse over the next few quarters. So far, credit managers have been able to contain the triple threat of higher oil prices, the burst housing market bubble and the lingering effects of tightened monetary policy conditions. But the combination of falling indexes, and three of the 10 combined components dipping below the 50 level indicating contraction, suggests that the deterioration in the rest of the economy may be starting to catch up with them.”

Manufacturing Sector

The manufacturing sector fell 0.7%, led by the dollar amount beyond terms component that fell a sharp 7.3%. Five of the 10 components fell. “While a large portion of the comments centered on the housing slump, there were comments from several other industries as well,” said North. One respondent in the abrasives industry noted that they were “seeing some domestic slow down,” and a participant from the newspaper industry wrote that “certain local industries continue to experience severe financial crisis (sic), citing cash flow problems, reduced sales and inability to get financing.”

Service Sector

The service sector index fell 1.3% in October, led by a 6.6% decrease in the dollar amount beyond terms. “Respondents in the service sector had a lot to say about the economy in October, most of which was not good,” North noted. He also added that the majority of comments predictably focused on the damage done by the housing market decline, but comments came from many other industries:

• Electrical equipment: “We’re anticipating a slow down in sales for 2008.”
• Trucking: “Delinquencies are increasing and potential bad debt is on the rise.”
• Plastics: “We have had several companies closed due to their bank not renewing a loan.”
• Food: “It is taking me at least 25% more time to collect the same money.”
• Transportation: “Business is getting tougher, collections are much tougher and it looks like it will be this way for some time to come.”
• Finally, from home furnishings came the simple, almost plaintive comment: "Sales are slow."

October 2007 vs. October 2006

The Credit Manager’s Index declined 1.5% over the past 12 months as seven of its 10 components fell. “The decline was led by the service sector, which lost 2.4% as seven of its components fell. The manufacturing sector fared better but still lost 0.6% as six of its components fell,” North said. “Once again, the year-over-year data reflect a minor decline in the state of the economy compared to last year,” he concluded.