NACM's Credit Manager's Index for February

The National Association of Credit Management (NACM) Credit Manager’s Index report for February found that American businesses may be curtailing their spending in anticipation of an economic slowdown which resulted in a decline for the Index for the sixth time. 

The seasonally adjusted Credit Manager’s Index (CMI) crept 0.6% lower in February. It was the sixth decline in seven months, and five of the Index’s 10 components fell. Much of the fall was driven by sharp decreases in the new credit applications component of all three indexes. “Indeed, without the slide in new credit applications, the combined index would have risen 0.3%. The data suggests that businesses are curtailing their spending in anticipation of an economic slowdown, a notion confirmed by January’s durable goods orders report, which showed that business orders for items meant to last more than a year dropped sharply last month,” said Dan North, chief economist with credit insurer Euler Hermes ACI. He noted that the combined sectors’ results reflect conditions found throughout the economy: continued economic momentum accompanied by stubborn signs of deterioration; the Institute of Supply Management’s (ISM) manufacturing index fell below 50 for the second time in three months; median housing prices have fallen for six consecutive months (an unprecedented event); and the U.S. Treasury yield curve has become increasingly negative, a strong indicator of a future slowdown.

Manufacturing Sector
The manufacturing sector fell 0.6% largely as a result of a 7.2% drop in new credit applications. North said, “Without that component, the index would have risen slightly by 0.1%. Survey respondents say they are ‘Definitely seeing a slowdown in manufacturing and sales,’ and that their ‘large customers are demanding longer payments terms be built into their contract.’”

Service Sector
The services sector fell 0.6% in February, again resulting from the number of new credit applications, which fell a sharp 9.6%. The index without that component would have risen 0.4%. “The services sector has fallen in four of the past five months and has underperformed the manufacturing sector over that period,” commented North. “Survey participants in the home building and furnishing supply business industries seem to have been hit the hardest.”

February 2007 vs. February 2006
On a year-over-year basis, the overall CMI fell 0.7%, as the drop in the services component of 2.6% more than outweighed the manufacturing component’s rise of 1.3%. North summed that while all of the indexes remain above the 50 level, indicating expansion, “the survey continues to suggest that ingrained weakness caused by the decimated housing market and tightening monetary policy continues to chip away at the economy’s considerable momentum.”

For more information on this report, visit www.nacm.org.