NACM Credit Manager' s Index Drops Slightly in May

The Credit Manager’s Index (CMI) for May perfectly demonstrated the overall position of the U.S. economy: well-entrenched in solid territory but also recently encountering a minor “soft patch”. The Total CMI dropped from 59.3 to 57.3, with the manufacturing sector falling 1.0 to 57.5, and the service sector, driven by deterioration in bankruptcies and dollar collections, falling 3.1 to 57.1. Despite the strong levels of virtually all the components of the Indices, it is useful to note some of the changes this month. The uptick in bankruptcy activity is especially noteworthy as it is 9.4 below last May?s level, and could continue to be affected by troubles in the airline and auto industries. Certainly higher energy prices will continue to ripple through the economy. Dollar collections fell in both sectors as did manufacturing sales, and they suggest, like bankruptcies do, that businesses have somewhat less free cash flow available at the moment.

While the CMI survey reflects solid conditions overall, the economy will continue to face some headwinds in the form of higher energy prices, weakness in Europe, and continued interest rate hikes by the Federal Reserve.

Manufacturing Sector Results
For the month of May, the manufacturing sector took a small step back, with the CMI finishing 100 basis points down, to end at 57.5 percent. Favorable factors, although still exhibiting strong economic growth, show erosion in three of the four factors. Only credit extended shows positive growth when compared to April. In total, unfavorable factors remained unchanged finishing at 51.9 percent. One positive change was lower levels of accounts placed for collections.

Service Sector Results
Finishing at 57.1, down 310 basis points from April, the service sector continued to show strong signs of economic growth, with nine of the 10 factors finishing above the 50 percent level. Down 520 basis points, all favorable factors remained strong, finishing in the mid-60s; while unfavorable factors slipped 150 basis points, to end at 51.9.

Comparison Of May 2005 To May 2004
The level of favorable and unfavorable factors for the May 2005 CMI closely matches the level of just one year ago. In both the manufacturing and service sectors, we find similarities between all but a few factors. Among the favorable factors, erosion in sales was found in both sectors; a 760 and 530 point drop in the manufacturing and service sector, respectively. When compared to one year ago, in both the manufacturing and service sectors, higher levels of bankruptcy filings contributed to a decline in the index of unfavorable factors.