The seasonally adjusted Credit Manager's Index (CMI) fell 1.8% points in October, reflecting a widespread deterioration as eight of the 10 components fell. While all but one component remain above the 50% level indicating economic expansion, it was the third consecutive drop for the combined index. "In addition, the drop was led by a sharp fall in the sales component of 7.2% points, an unsettling number since a decrease in sales can suggest a deterioration in future business conditions as well," said Dan North, Chief Economist with credit insurer Euler Hermes ACI. "The credit managers in the survey are confirming what other macroeconomic data suggest; the effects of a tightening monetary policy and a dismal housing market are taking a toll on the health of the economy."

Manufacturing Sector

North noted that the manufacturing sector fell for the third straight month, declining 2.1% points. The decline was led by sharp drops in the sales component of 6.3% points, and in dollar collections of 6.2% points. "Such declines in favorable factors point to the possibility of a continued slowing," he commented. "Survey respondents said 'domestic sales are slower' and 'we have seen a slowing in the economy and sales orders'."

Service Sector

Summing up the service sector, North said, "The index fell 1.4% points, driven by an especially sharp decline in sales of 8.2% points—the second largest decline ever, and the third in four months. One respondent brought the data into sharp relief by saying, '…we are definitely seeing the beginnings of a downward trend.' Another respondent's comment that 'people trying to stretch terms is totally out of control' is reflected by declines in the dollar amounts beyond term and the dollar amounts of customer deductions."

October 2006 vs. October 2005

Over the past 12 months, the manufacturing index has fallen 1.4%, the services index has fallen 2.1% and the combined index has fallen 1.8%. Six of the 10 components in the combined index have fallen in the past year, led by a plummet in the sales component of 13.8%, as sales fell 12.3% in manufacturing and 15.3% in services. "The only true bright spot was the improvement in bankruptcies, but even that was a one-time distortion caused by a change in the bankruptcy laws," said North. "Indeed, if the bankruptcy component were removed, the manufacturing, services and combined indexes would have fallen 2.6%, 3.9% and 3.3% instead of only 1.4%, 2.1% and 1.8%, " he continued. "The year over year data confirms what the monthly data suggest: a decent economy that is being steadily eroded by a tightened monetary policy and a dismal housing market."

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 500 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.

To view the entire index, including graphs, click here :
http://www.nacm.org/resource/press_release/CMI_current.shtml