NACM's Credit Manager's Index Falls Again

The seasonally adjusted Credit Manager’s Index (CMI) fell for the fifth consecutive month in December, and now stands at its lowest level since April 2003. "The Index fell 0.5% as seven of the 10 components declined," said Dan North, Chief Economist with credit insurer Euler Hermes ACI. "Four of the components are now under the 50 level signaling contraction, the most since March of 2002." The CMI data strongly suggests a slowing economy, and remains consistent with data from the rest of the macroeconomy indicating a slowdown: weak GDP growth for two consecutive quarters, durable goods orders (ex-transportation) falling for two second consecutive months, modest holiday sales and signs of weakness in the labor markets.

Manufacturing Sector

The manufacturing sector has shown an increase in the past two months, primarily on sales, boding well for the future months. But comments from survey participants and a closer look at the data still show signs of weakness. “Five of the 10 components fell, but they were offset by relatively large increases in just three components: sales, new credit applications and filings for bankruptcies,” said North. “Without these three, the manufacturing index would have fallen 0.3%.” Indeed, one participant describes an increase in “customers who ‘cannot pay’” while another labels the residential housing sector as “almost at a standstill.”

Service Sector

The service sector fell for the third consecutive month, dropping 2.5% as eight of the 10 components fell. “It is worthwhile noting that five of the 10 components are now below the 50 level, indicating a contraction in activity,” he said. There have not been this many components below 50 since March of 2002, and the total services index has not been this low since March of 2003.

December 2006 vs. December 2005

On a year-over-year basis, the total CMI Index has fallen 3.6 from 58.3 to 54.7 as nine of the 10 components fell. “The fall was driven mostly by deterioration in the services sector which fell 7.5, again as nine of 10 components fell,” said North. In the manufacturing sector, five components fell but the index did manage to seek out a 0.4% gain. “Overall, the year-over-year data continues to suggest an economy slowly weakening under the strain of tightened monetary policy and a decimated housing market,” he added.  

The CMI data has been collected and tabulated monthly since February 2002. The index, published since January 2003, is based on a survey of about 500 trade credit managers during the last 10 days of the month, with about equal representation between manufacturing and service sectors. The survey asks respondents to comment on whether they are seeing improvement, deterioration, or no change for various favorable or unfavorable factors. There is representation from all States, except some of the less populated such as Vermont and Idaho.

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