The seasonally adjusted Credit Manager’s Index (CMI) fell for the third consecutive month in November, losing 0.7% as both service and manufacturing sector indexes declined. Although the drop was relatively small, all six unfavorable factors components fell, leaving five below the 50 level, indicating economic contraction. “This is the first time that there has ever been more than four components indicating contraction since the inception of the CMI in 2002, and it could well be a harbinger of things to come,” said Daniel North, chief economist with credit insurer Euler Hermes ACI.
North listed current conditions: gasoline prices are high, housing prices are low, the dollar is crumbling, consumer confidence is plummeting, holiday sales have been mixed at best, credit is drying up, bankruptcies and foreclosures are on the rise, the employment situation is decaying and conditions in the housing industry are getting worse. “It is a potent combination which could lead the economy into a recession in the first half of next year, yet both the economy and the CMI have remained resilient so far,” he said. “However, cracks are starting to show and the Fed will almost certainly cut the Fed Funds rate again at its December 11th meeting in an effort to forestall a recession. In all likelihood, the Fed will have to continue to cut the Fed Funds rate well into 2008, perhaps as low as 3.5%. Credit managers are facing tougher times ahead.”