Credit index holds steady

The seasonally adjusted Credit Manager’s Index (CMI), issued by the National Association of Credit Management (NACM), crept up 0.1% in May as a decline in the manufacturing sector of 0.7% was offset by a gain in the service sector of 0.9%

The seasonally adjusted Credit Manager’s Index (CMI), issued by the National Association of Credit Management (NACM), crept up 0.1% in May as a decline in the manufacturing sector of 0.7% was offset by a gain in the service sector of 0.9%.

According to NACM, the report showed mostly small changes in the 10 components, with the number of increases and decreases evenly split. “The 0.1% increase for the combined index was hardly robust since it would have actually fallen 0.3% without the sharp increase in the amount of credit extended in the manufacturing sector,” remarked Dan North, chief economist with credit insurer Euler Hermes ACI.

“Except for hints of improved cash flow in the service sector, the data suggest that conditions were only slightly improved from last month; however, the small improvement came off of a good base, pushing all of the components above the 50 level indicating economic expansion,” he said. “Overall, credit managers are currently reporting good business conditions.”

The manufacturing sector fell 0.7%, showing widespread but shallow weakness as seven of the 10 components fell. “The only offset to this weakness was a jump of 7.7% in the amount of credit extended,” North noted. “Without the gain in this single component, the entire manufacturing index would have fallen 1.7%.” He added that comments from respondents were mixed although several still pointed to continuing troubles in the housing market.

The service sector gained 0.9% as six of 10 components rose. There were significant improvements in the dollar amount beyond terms, which was up 5.3%, and the dollar amount of customer deductions, which gained 4.0%. Both components moved back above the 50% level indicating economic expansion. “The data suggest buyers have experienced improved cash flow during the month and are taking the opportunity to clear out old payables,” North said. “Like the manufacturing sector, comments from respondents in the service sector were mixed with several still reporting continued troubles in the housing market.

“On a year-over-year basis, the service sector rose 0.4%, but a strong increase in the manufacturing sector of 3.4% pulled the combined index up 1.9%,” continued North. “Overall, the data suggest that the economy continues to expand at a modest pace despite the drag of tightened monetary policy, high energy prices and a devastated housing market.”

The CMI is a monthly survey of the business economy from the standpoint of commercial credit and collections. The survey asks credit managers to rate favorable and unfavorable factors in their monthly business cycle. Favorable factors include sales, new credit applications, dollar collections and amount of credit extended. Unfavorable factors include rejections of credit applications, accounts placed for collections, dollar amounts of receivables beyond terms and filings for bankruptcies.

A complete view of the index can be viewed at: http://www.nacm.org/resource/press_release/CMI_current.shtml .

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