"Overall, there were no dramatic changes from July’s report," said Daniel North, chief economist for credit insurer Euler Hermes ACI, who evaluates the data and prepares the report for the National Association of Credit Management. "However, in both manufacturing and service, dollar collections and the dollar amount beyond terms worsened," he continued. "The data suggest that tough economic conditions are strangling buyers’ cash flow. Buyers are stretching their payment terms beyond normal and even after that, it appears that they still cannot pay their bills."
The seasonally adjusted manufacturing sector index slipped 1.0% in August, leaving six of its 10 components below 50%. "Prices seem to be less of an issue this month in terms of hurting business, but instead they are inflating credit limits and sales," said North. "Slow pay seems to be the biggest problem." North noted that a manufacturer of valves and pipes reported, "Customers are looking for ways to slow payments." A plastics producer replied, "We are having to exert more effort to get payment for receivables," while a sheet metal firm reported, "We have some of the bigger customers attempting to extend terms." North said, "On the flip side, international business seems strong, probably due to the weaker dollar, which makes U.S. goods more competitive abroad." A food manufacturer responded that "international sales are increasing very fast," a furniture manufacturer noted, "Our sales are up on the international side," while a producer of carpeting reported, "sales to Latin and South America have increased."
The seasonally adjusted service sector inched up 0.5% to 51% as six of its 10 components rose. "However, the fact that six components are still at or below the critical 50% value seems to explain the more negative tone of the participants," said North. "Providers of HVAC and electrical equipment services noted that they are seeing more NSF checks than ever before," he said. Other survey responses that stood out include a supplier of transportation services that said, "Customers that have never been a problem are going beyond terms." A repair service stated, "Many customers are expecting us to be their bank!" And reflecting on the "credit crunch," a participant in the plastics industry reported, "We are seeing more companies close due to lack of bank funding."
"On a seasonally adjusted basis, the year-over-year comparisons for both the manufacturing and service sector indexes show a definitive downward trend, reflecting the deterioration in the overall economy," said North. "All 10 of the components in the manufacturing sector index fell, pushing the index down 4.6% to 50.4%. The service sector hardly fared better as all 10 components fell, driving the index down 4.2% to 51.0%. Both indexes hover just above the 50% dividing line between economic expansion and contraction."