Credit Manager’s Index for July Idles Near Neutral

The seasonally adjusted Credit Manager’s Index rebounded slightly in July,
gaining 0.8% as the manufacturing sector index rose 1.6% and the service sector
index crept up 0.2%. All three indexes—combined, manufacturing and service—are
hovering just above the crucial 50 value, indicating a slight degree of economic
expansion. “There was little in the data to provide a compelling picture of
credit conditions one way or another,” said Daniel North, chief economist for
credit insurer Euler Hermes ACI, who analyzes the data and prepares the report
for NACM. “For instance, for the combined index, six of the 10 components fell
and six remain below 50, yet the index itself rose and remained above 50.
Similarly, comments from the participants were a mix of good news, bad news and
price increase news.”

North said, “The report actually reflects very
closely the state of the business cycle and the Federal Reserve’s dilemma. The
Fed faces six straight months (seven as of August 2nd) of job losses, but also
faces consumer price inflation of 4.9%. Given that, either a rate cut or
increase could easily be the wrong move. The Fed’s assessment of the economy
will probably be the same as those of credit managers as a whole; it’s somewhere
right in the middle. And the best choice for right now might be to sit
tight.”

The seasonally adjusted manufacturing sector
index rose above the 50% level in July, gaining 1.6%, but four of the 10
components fell and six remain below 50. Comments from survey participants were
similarly mixed.

Good News
“In the last 30 days,
have noticed an increased demand for our products.”
“More jobs
started.”
“Sales and production still very strong.”
“June was the first
positive month in a long time. Our customers are finally
re-ordering."

Bad News
“Smaller businesses are
really struggling…”
“This economy is scary, and there are no historical
precedents to rely on.”
“…customers…hold onto the funds longer”
“lending
institutions requiring much higher dollar commitments”

Price
News

“Fuel prices are having a major impact on business
decisions!”
“Steel price inflation has raised the dollar amount (of sales,
collections, etc.).”

The seasonally adjusted service
sector
index eked out a 0.2% gain to the 50.5% level, but half of the
components fell, and six still remain below 50. Once again, the data is a mixed
picture, just as the commentary is.

Good
News

“Business…increasing dramatically during the past four months.
Exports in particular have increased.”
“Sales have increased over any
previous year [’05 thru ’07] for the months of January through June.”
“We
continue to manufacture at 100% capacity.”
“We have had excellent DSO over
the last two months.”

Bad News
“Be very careful in
this economy as professional debtors seem to rise to the top when dollars get
tight.”
“We have a lot of companies paying off their accounts and closing
their doors. Also a lot of customers with health problems (under too much
stress). More verbal and actual fraud than ever before.”
“More bankruptcies
in last 3-4 months more that what I receive in a normal year.”
“…number of
returned checks has increased dramatically…the collection environment is worse
than I have ever seen in my 20 years in collection!”

Price
News

“The cost on some of our items has increased
60%.”
“Petrochemical product pricing is up…logistics is challenging with
rising fuel costs.”
“Price increases are testing the limits of credit
lines.”
“Primary reason for higher sales continues to be high gasoline
prices…”

“On a seasonally adjusted basis the year-over-year
comparisons show an undeniable downtrend,” said North. “The manufacturing sector
has lost 3.2% as all 10 of its components fell. The service sector fell 4.9% as
eight of its components fell. Clearly the strength of the economy has fallen
over the past year. After all, last August was when the subprime debacle started
to really rattle the global credit markets.”

View the complete July
report online here.

Source: NACM

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