NACM’s Credit Manager’s Index for June 2008 Reflects Torpid Times

"The seasonally adjusted Combined Credit Manager’s Index fell 0.9% in June,
setting or tying a number of unpleasant records in the process," said Daniel
North, chief economist with credit insurer Euler Hermes, ACI, who evaluates and
issues the report for the National Association of Credit Management (NACM). "All
three indexes tied their records for the most components below the critical 50
value indicating economic contraction: six for the combined and manufacturing
indexes, and seven for the service index," he noted. A record nine components
fell in the manufacturing index. The combined and manufacturing indexes reached
their second lowest levels ever at 50.1 and 49.8, respectively.

"What a difference a month makes. In contrast to last month’s cheery tone,
credit managers now seem downright depressed," North said and reported
"UGH…rough month!" from one survey participant. "While the housing market used
to be the single largest source of misery, fuel prices are starting to take
over," he said. "As gasoline continues to set record inflation-adjusted levels,
businesses from retailing to transportation to groceries are suffering. Given
that May was the fifth straight month for job losses, real retail sales and wage
growth are both negative year over year, foreclosures are at sky-high record
levels and business bankruptcies continue to rise, it’s no wonder that the
majority of credit managers are seeing tough times."

The seasonally adjusted manufacturing sector index fell 2.7% to 49.8%, only
the second time that the index has dipped below 50, indicating economic
contraction. Nine of the 10 components fell. Six are below 50. Two components,
dollar collections and dollar amount beyond terms, set record lows. A
manufacturer of audio tapes noted that their customers were "Going out of
business at a very rapid rate!" and a sheet metal company reported, "Customers
are attempting to stretch out their terms." North said, "Once again rising
prices affected the survey as one participant reported that higher sales figures
were due only to higher prices, not higher volume, and another explained that
his increased sales were due to customers rushing to purchase goods before a
price increase took effect."

The seasonally adjusted service sector index fell 1.2% to 50.3% as six out of
10 components fell, leaving a total of seven components below 50. Norh said,
"Once again survey participants noted difficulties caused by rising fuel prices,
but customer payment patterns were the source of an unusual number of
complaints: ‘very slow pay for big jobs,’ ‘customers experiencing cash flow
issues,’ ‘a rise in collection problems,’ ‘past-due accounts getting harder to
collect,’ ‘significant spike of cash flow problems,’ ‘more customers extending
out payment terms’ and ‘the number of accounts being placed for collections is
rising.’"

On a seasonally adjusted basis the year-over-year comparisons are grim. All
10 components in all three indexes fell. The combined index fell 6.3%, the
manufacturing index fell 6.9%, and the services index fell 5.7%. The drop in the
manufacturing and combined indexes set records.

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, can be viewed at http://web.nacm.org/cmi/pdf/CMI_June2008.pdf.

This report and the CMI archives may be viewed at http://web.nacm.org/cmi/cmi.asp.

Source: National Association of Credit Management

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