Columbia, MD — September 2, 2008 — The seasonally adjusted Credit Manager's Index has inched even closer to the neutral economic expansion/contraction point of 50 percent, creeping down 0.2 percent to hover at 50.7 percent, and payments beyond terms are on the rise, the National Association of Credit Management (NACM) has reported.
The manufacturing sector index slipped a full percentage point to 50.4 percent, as only four of its 10 components rose. The service sector index fared better, gaining half a percentage point, rounding out at 51.0 percent as six of its 10 components rose. All three indexes have six components at or below the 50 percent 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 NACM. "However, in both manufacturing and service, dollar collections and the dollar amount beyond terms worsened. 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."
Global Business a Bright Spot
The seasonally adjusted manufacturing sector index slipped 1.0 percent in August, leaving six of its 10 components below 50 percent. "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."
"On the flip side," North said, "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 Inches Up
The seasonally adjusted service sector inched up 0.5 percent to 51 percent as six of its 10 components rose. "However, the fact that six components are still at or below the critical 50 percent 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."
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."
"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 percent to 50.4 percent. The service sector hardly fared better as all 10 components fell, driving the index down 4.2 percent to 51.0 percent. Both indexes hover just above the 50 percent dividing line between economic expansion and contraction."
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.
A complete index including results from the manufacturing and service sectors, along with the methodology, can be viewed at http://web.nacm.org/cmi/pdf/CMI_current.pdf. CMI archives may be viewed at http://web.nacm.org/cmi/cmi.asp.
The manufacturing sector index slipped a full percentage point to 50.4 percent, as only four of its 10 components rose. The service sector index fared better, gaining half a percentage point, rounding out at 51.0 percent as six of its 10 components rose. All three indexes have six components at or below the 50 percent 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 NACM. "However, in both manufacturing and service, dollar collections and the dollar amount beyond terms worsened. 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."
Global Business a Bright Spot
The seasonally adjusted manufacturing sector index slipped 1.0 percent in August, leaving six of its 10 components below 50 percent. "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."
"On the flip side," North said, "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 Inches Up
The seasonally adjusted service sector inched up 0.5 percent to 51 percent as six of its 10 components rose. "However, the fact that six components are still at or below the critical 50 percent 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."
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."
"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 percent to 50.4 percent. The service sector hardly fared better as all 10 components fell, driving the index down 4.2 percent to 51.0 percent. Both indexes hover just above the 50 percent dividing line between economic expansion and contraction."
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.
A complete index including results from the manufacturing and service sectors, along with the methodology, can be viewed at http://web.nacm.org/cmi/pdf/CMI_current.pdf. CMI archives may be viewed at http://web.nacm.org/cmi/cmi.asp.
