NACM Credit Manager's Index Declines Again in September

NACM’s Credit Manager?s Index came in at 56.0 for September, falling 5.1% from August. The decline was largely the result of a 7.6% drop in the CMI Service Index. Although the total index and its sub-indices are each above 50, they indicate that the rate of growth in the economy continues to slow. This slowness has now entered its third month for the manufacturing sector and its fifth month for both the service and combined sectors.

MANUFACTURING SECTOR RESULTS
The latest survey data indicates that the problems with the manufacturing sector are on the ?unfavorable factor? side. There was erosion in each indicator: greater rejection of credit applications, more accounts placed for collections, increased disputes, customers taking longer to pay, increased deductions, and greater bankruptcy filings. When these results are considered with the ?favorable factors?, it suggests that the higher credit risks in the receivable portfolios are the problem. It also suggests that the high levels of credit extended from March through June could now be problem accounts.

SERVICE SECTOR RESULTS
What has happened to the service sector? Every indicator for September has declined! The survey readings for this sector have declined for five consecutive months. There is significant slowing in sales growth and amount of credit extended. This action is in response to increased placement of accounts for collections, increased lengthening of payments beyond the credit period, and increased bankruptcy filings. The service sector, while still growing, is rapidly seeing growth erosion and is approaching the neutral zone. The last time the service sector had a reading lower than 54.7 was March 2003, which came in at 54.6.

COMBINED SECTORS
The combined index has now fallen five consecutive months and is at its lowest level since February 2004. Whereas the manufacturing sector pretty much held its ground in September, the service sector lost 450 basis points. The combined index of unfavorable factors (56.0) is at its lowest level since August 2002. Continuing deterioration in the ?unfavorable factors? will lead to reduced sales as businesses become more selective in extending credit.

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.

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