October CMI Reports No Shortage of Dread in B2B Finance Sector

Few treats found as accounts placed for collection and other indicators hit record lows, again.

"The seasonally adjusted Credit Manager's Index (CMI) for October revealed an increasing sense of doom among the participants, mirroring conditions in the rest of the economy," said Daniel North, chief economist for credit insurer Euler Hermes ACI, who analyzes the data and prepares the CMI report for the National Association of Credit Management. The combined index fell 2.6% to a record low of 44.8%. Eight of the 10 components fell, nine are now below the 50 level, indicating economic contraction, and eight set record lows. "The misery was spread all around but manufacturing fared the worst, losing 4.2%, while services fell 0.9%," said North. Both manufacturing and services were below 50% for the second consecutive month. "The 'accounts placed for collection' component was below 40% in both manufacturing and service sectors, suggesting that customers are trying their best to drag out terms in an effort to get credit in any form they can, because apparently banks aren't giving any," said North.

"Certainly the economy is in dismal shape after the effects of high energy prices and the housing market bubble burst have been dragging on for some time. Now the increasing number of job losses, shrinking GDP, negative real retail sales and a host of other indicators confirm that the recession has arrived. Perhaps most troubling though is the disruption in the financial markets which has severely curtailed the availability of credit. As a result, which credit managers are so clearly telling us, not only is the economy bad, but the credit situation is making it even worse," said North.

The seasonally adjusted manufacturing sector index fell 4.2% to a record low of 43.7%, North reported. Nine components fell, all 10 are below the 50% level and six set record lows. Weak collections, slow payment and tight credit bode poorly for the coming months as our participants from various industries tell us:

"Tight, tight money and now a new worry is the customer's bank." – Steel works
"The number of final demand letters has increased, indicating probable future deterioration in receivables." – Motor vehicle parts
"Reviewing credit limits and deciding to lower quite a few as a precautionary measure." – Fabricated rubber
"Our market condition is continuing to decline. Our sales continue to shrink." – Telephone equipment
"Projecting slow growth…" – Glass works
The seasonally adjusted service sector index fell 0.9% to 45.9%. Six components fell, eight are below 50% and five set record lows. "The climate in the service sector is decidedly more irritable than in manufacturing," said North. "The manufacturing sector seems more focused on weak demand, but service sector credit managers are more concerned about getting their money back."
Construction materials: "We are…filing more liens than we have ever done."
Electronic parts: "I fully expect bankruptcies and delinquencies to increase through 2009."
Seafood: "Our customers are seriously challenged by the current economic environment. Threatened credit cut-offs and actual credit cut-offs…are at an all time high."
Farm supplies: "Increase in the number of customers that are sending smaller weekly payments on account instead of paying invoices in full."
Metals service center: "We are beginning to see effects of economic downturn, i.e., slower payments, more unauthorized deductions, increased request for extended terms, request for price adjustment…"
"It's not surprising then, in this environment, to see that one industry in particular is doing well—legal services," said North. Said one respondent, "I expect this to be our best year in 25 years for new business and net revenue."

"On a seasonally adjusted basis over the past 12 months, the combined index has fallen 9.0%, with most of the decline coming in the most recent two months," said North. Services fell 8.7% and manufacturing fell 9.3%. Bankruptcies led the way in all three indexes, dropping 16.2% in services and 19.4% in manufacturing.

Source: NACM

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