NACM's Credit Manager?s Index Rises January

The nation’s economy exceeded expectations to begin 2007, as evidenced in the latest economic study released by the National Association of Credit Management (NACM).

The seasonally adjusted NACM Credit Manager’s Index (CMI) rose 2.5% from
54.7 in December to 57.2 in January, erasing all of the losses from the previous four months. "All of the 10 components of the combined index rose, and none are below the 50 level, indicating economic expansion," said Euler Hermes ACI Chief Economist Dan North, who provides regular commentary and analysis for the CMI. The services sector lead the way in January, rising 3.4% while the manufacturing sector rose 1.6%.

"The CMI gives a similar impression to much of the other better-than-expected economic news, painting a picture of a resilient economy which has so far weathered the headwinds of a tightening monetary policy and a decimated housing market," said North. "It is quite likely however that the unusually warm weather in the densely populated East gave an extra boost to most recent economic indicators including the CMI."

Additionally, North provided the following commentary concerning the actions of the Federal Reserve: "Fourth quarter Gross Domestic Product (GDP) released on January 31 showed a robust annualized growth rate of 3.5%. In fact, just hours after the GDP report, the Federal Reserve’s Federal Open Market Committee (FOMC) released a statement at the end of its two day meeting which observed ‘.somewhat firmer economic growth.’ and ‘.signs of stabilization . in the housing market.’ Despite this acknowledgment of economic strength in the past quarter, the FOMC properly focused on the future and decided to leave the Fed Funds rate unchanged at 5.25%, saying that ‘Overall, the economy seems likely to expand at a moderate pace over coming quarters.’ As if on cue, two days later the Labor Department released the government’s very first read on the economy in the new year, and it indeed hinted at signs of a slowing economy. The January employment report showed a gain of only 111,000 jobs versus already modest expectations of 150,000. The slowing suggested in that report and by the FOMC’s statement is quite likely a result of the Fed’s own policy tightening and the lingering effects of the devastated housing market. The FOMC’s statement therefore suggests the possibility of a rate cut later this year, while its expression of concern that ‘.some inflation risks remain.’ is more likely to be a credibility-building measure than it is the highlighting of an imminent threat."

Sector by sector analysis of the January CMI follows:

Manufacturing Sector
The manufacturing sector rose 1.6% as seven of the ten components increased.
All of the ten components are above the 50 level indicating expansion in the manufacturing sector.

Services Sector
There was strength throughout the service sector data as a total of nine out of ten components rose, but the sector was driven largely by a dramatic increase in the sales component which rose 11.9%. The positive sales data was concentrated in the large number of construction and housing materials suppliers who reported increased sales over the previous month, even after seasonal adjustments. This surprising increase is also reflected in other recent data such as December’s 4.5% increase in housing starts and a 5.5% increase in building permits which broke a string of ten consecutive monthly drops.

January 2007 vs. January 2006
On a year-over-year basis, the total CMI Index was flat as five components rose and five fell. The manufacturing sector rose 1.2%, outperforming the services sector which fell 1.2%. Perhaps most importantly, the two sectors and the combined index are all well above the 50 level, showing an economy which seems to be progressing quite well despite the weight of a tightening Fed and a frozen housing market.

A complete view of the CMI can be viewed online at www.nacm.org.