NACM Credit Manager's Index Rises in April

The change of seasons brought about a change in the nation’s business climate according to a major credit index produced by the National Association of Credit Management. However, commentary and analysis by global accounts receivable management provider Euler Hermes ACI shows that there are mixed messages within the survey data.

The seasonally adjusted Credit Manager’s Index (CMI) rose 1.6% in April, recouping last month’s losses as eight of the 10 components of the Index rose. The increase was driven by gains in the sales component and in both collections components.

"While overall the report was positive, there was a disparity between the manufacturing sector, which rose 3.3%, and the service sector, which was unchanged," said Dan North, Euler Hermes ACI Chief Economist. He noted that comments from the respondents echo a familiar refrain that the demise of the housing market has been a major drag on distributors of goods into that industry. "Median prices on existing homes have now fallen for eight consecutive months on a year-over-year basis," he noted. "This is an unprecedented event since house prices almost never fall, and they have never fallen for more than two months in a row in the 38 years that records have been kept." The continued deflation of the housing market bubble as seen in this data, combined with the lagged effects of monetary policy tightening and the prospect of higher gasoline prices, suggest that the economy will continue to slow throughout the year.

"Indeed last Friday’s report from the Commerce Department showed real Gross Domestic Product grew at an anemic 1.3% in the first quarter, well below many economists’ forecasts," North continued. "Housing dragged GDP down for the third consecutive quarter, taking almost 1% off of the headline number.

The data reflects our view that the deflating housing bubble has been, and will continue to be, a significant headwind on the economy."

Sector by sector analysis of the CMI follows:

Manufacturing Sector
"The manufacturing sector rose 3.3% and enjoyed widespread gains as eight of the 10 components rose in April, more than recouping last month’s drop.
Improvements in accounts placed for collections and dollar amount beyond terms were especially notable," North said. One survey respondent stated, "We have not placed any accounts for collection YTD. Our receivables are current and deductions are at an all-time low dollar amount open." Another noted, ".record first quarter in sales."

Service Sector
The services sector remained unchanged overall but six of the 10 components fell and two remain below the 50 level indicating economic contraction.
"Once again, the demise of the housing market is the primary concern of the survey participants," North said. Distributors of home furnishings and building supplies note, "sales are down considerably," "housing market continues to cause problems," and "customers tell us they will ‘pay when paid’." Other respondents cite a "slow down within the housing market" and "higher than normal disputes . more liens filed."

April 2007 vs. April 2006
North commented, "On a year-over-year basis, the combined index fell 0.9%, reflecting a resilient yet slowly deteriorating economy. The disparity between the two sectors on a year-over-year basis was notable. The manufacturing sector gained 1.3%, but the services sector fell 2.9% as the decline of the housing market weighed on suppliers to the home building and construction industries."