Small Increase for NACM's Credit Manager?s Index for October

There is a small up-tick of 20 basis points in the overall CMI for October, a result of improvement in the service sector, which was partially offset by continuing slowness in the manufacturing sector. It appears that the declining month-over-month slowing in growth of the past few months may continue through November.

MANUFACTURING SECTOR RESULTS
The manufacturing sector index shows minimal change from last month: 57.4 versus 57.6. However, the makeup of the current index is troublesome. Each of the favorable factors declined. Overall, the fall was 340 basis points. The erosion in ?new credit applications? and ?amount of credit extended? suggests continuing slowness in sales will occur in November. This forecast is supported by the increase in ?rejection of credit applications??more accounts being denied trade credit. There is some good news in these results, as evidenced by improvements with ?disputes? and customer balances beyond terms. It appears that problem accounts are being closely managed.

SERVICE SECTOR RESULTS
The service sector finally shows improvement after six months of declining performance. This is welcome news although it must be looked at cautiously. ?Sales?, ?new credit applications? and ?dollar collections? all show deterioration for October. ?Disputes? and ?bankruptcies? are less cause for concern this month, problem accounts are being resolved.

Overall, November is looking reasonably neutral in terms of direction for the service sector in the economy.

COMBINED SECTORS
Each of the favorable factors declined for October with the overall favorable index at its lowest level since February 2004. The decline is concerning. Sales and credit applications are down relative to the prior two or three months and firms are also extending less credit. This pattern suggests sales growth will continue to slow.

There is improvement with the unfavorable factors, nudging up almost 200 basis points from September?s neutral reading. The most encouraging sign is the improvement in customer payments, as captured by ?dollar amount beyond terms?.

The National Association of Credit Management (NACM), headquartered in Columbia, Maryland supports more than 25,000 business credit and financial professionals worldwide with premier industry services, tools and information. NACM and its network of Affiliated Associations are the leading resource for credit and financial management information and education, delivering products and services, which improve the management of business credit and accounts receivable. NACM’s collective voice has influenced legislative results concerning commercial business and trade credit to our nation’s policy makers for more than 100 years, and continues to play an active part in legislative issues pertaining to business credit and corporate bankruptcy. George W. Gallinger, Ph.D., of the W. P. Carey School of Business, Arizona State University, Tempe, AZ prepared the index results and analysis. More information is available at www.nacm.org or by contacting Norma Heim at 410-423-1842.