Credit Manager’s Index Reports Third Consecutive Decline

Columbia, Maryland: November 1, 2006 — 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.”

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

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.”

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.”

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. A complete view of the index can be viewed online

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