T/he seasonally adjusted Credit Manager’s Index (CMI) fell for the fifth consecutive month in January, slipping 1.0 point to a record low of 51.4. The previous record had been set last month at 52.4. “Five of the index’s 10 components fell, and both the manufacturing and service indexes declined, indicating that the weakness was widespread although not terribly deep,” said Daniel North, chief economist with credit insurer Euler Hermes ACI. “The CMI’s steady decline has mirrored other macroeconomic data which suggests a sharp slowdown. For instance, fourth quarter GDP grew at an annualized rate of only 0.6%, well under expectations of 1.1% and the long-term average of 3.5%. The GDP report showed the economy as perilously close to the beginning of a recession.”
“Signs of the downturn are everywhere: terrible holiday sales, massive job losses in housing and in financial services, downtrends in volatile global financial markets, downgrades of bond insurers and many debt instruments, the Fed overreacting with cuts of 1.25% in eight days and an emergency stimulus plan in the works,” North said. “Clearly, these unpleasant trends in the macroeconomy are now well reflected in credit managers’ experience.”
The seasonally adjusted manufacturing sector index fell for the fourth time in five months, dropping 1.8 points to 51.7, the second lowest level in the index’s history. Six of the 10 components fell, including a sharp decline in the sales component of 8.9 points. “A decline in the sales component of this magnitude is often a harbinger of decay in the overall manufacturing index in the coming months,” North said. “It’s no surprise that the housing market is the biggest culprit.” North also explained how one survey respondent noted that their increased past dues were coming from one of the largest national chains of building supplies. Another noted that terrible business conditions in residential construction is now rather ominously “beginning to affect commercial jobs as well.” Finally, one participant, a concrete and stone supplier to the housing industry, painfully summed up business conditions as, “By far worse this year than past years.”
The seasonally adjusted service sector index fell for the fourth consecutive month in January, sliding 0.1 points to 51.1. “In addition, six of the 10 components fell, indicating a broad-based and more pervasive decay recently,” North said. “Negative commentary from the survey participants is of course mostly about the housing industry, but participants from other industries are now chiming in with their comments about deteriorating conditions as well.” According to one participant in farm and garden machinery and equipment, they have had “more bankruptcies in one month than ever before,” and a participant in plastics also noted that bankruptcies are up. A packing and crating industry respondent noted their former good paying customers are having trouble, telling them “I can’t pay you until I get paid.” Another participant in the motor vehicle supplies and new parts industry noted a tough couple of months for many of their customers, and another in freight transportation summed it up by saying, “Things are slow.”
On a seasonally adjusted basis, the combined Credit Manager’s Index has fallen 5.0 points to 51.4. The manufacturing sector index has fallen 4.9 points and the service sector index has fallen 5.1 points. “In all three indexes, all of the 10 components have fallen, giving a very clear signal that the indexes are in a strong and pervasive downtrend,” said North.
The CMI, a monthly survey of the business economy from the standpoint of commercial credit and collections, was launched in January 2003 to provide financial analysts with another strong economic indicator.
The CMI survey asks credit managers to rate favorable and unfavorable factors in their monthly business cycle. Favorable factors include sales, new credit applications, dollar collections and amount of credit extended. Unfavorable factors include rejections of credit applications, accounts placed for collections, dollar amounts of receivables beyond terms and filings for bankruptcies. A complete index including results from the manufacturing and service sectors, along with the methodology, is attached or can be viewed online at http://www.nacm.org/resource/press_release/CMI_current.shtml.
The National Association of Credit Management (NACM), headquartered in Columbia, Maryland supports more than 22,000 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. www.nacm.org