Credit Managers Index for November 2006

The seasonally adjusted Credit Manager’s Index (CMI) fell for the fourth consecutive month in November. “While the decline was small at 0.1 percent, the CMI continues to indicate an economy slowly weakening under the weight of monetary tightening by the Fed and a decimated housing market,” noted Dan North, Chief Economist with credit Insurer Euler Hermes ACI. He noted that other recent economic data confirm the CMI’s message: uneven holiday sales, plunging durable goods orders, falling consumer confidence and below-trend GDP growth. “In addition, the median sales price for existing homes has fallen on a year-over-year basis for an unprecedented three straight months, the latest of which was the largest decline ever.”

“In contrast, Fed Chairman Bernanke and the Fed Governors have been predictably banging the drum about the risks of inflation and how the deteriorating housing market will not hurt the economy. It is difficult to read much into this ‘jawboning’ because, no matter what the economic circumstances might be, the Fed must continue to build credibility and present a clear, uniform message: ‘We are inflation fighters’,” North stated. However, if the slowing economy does fail to quell inflation, the Fed will continue to raise rates to reduce the risk of inflation, and by so doing, increase the risk of seriously hampering the economy. “Given the deteriorating trends in the CMI, that scenario could be a most ‘unwelcome’ one,” he remarked.

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