NACM Credit Manager's Index for June Shows Improvement

The Credit Manager’s Index (CMI) rose 0.5% in June to 57.8%, continuing to paint a picture of reasonably strong economic growth. The increase was driven by the service sector, whose 1.3% increase overcame the 0.2% fall the manufacturing sector suffered. Although the manufacturing sector remains in positive territory at 57.3%, it has fallen for two consecutive months and remains 2.6% below last June’s level. Dollar collections and accounts placed for collection both fell. Each remains significantly below last year’s levels and, like last month, suggest that free cash flow remains a problem in the manufacturing sector, especially in the auto industry. Conversely, eight out of ten components in the service sector rose, led by a 5.6% improvement in bankruptcies, wiping out last month?s loss. Overall, the index rose 0.5% to 57.8%, mirroring the macroeconomy?s state of reasonably strong growth, and perhaps a rebound from last month’s “soft patch.” Nonetheless, continued interest rate hikes, a return to sharply rising energy prices, and weakness in Europe all represent significant headwinds.

MANUFACTURING SECTOR RESULTS
The Manufacturing CMI remained virtually unchanged for June 2005, finishing at 57.3 percent, or 20 basis points down from May 2005. Lower dollar collections and credit extended resulted in a 120 basis point loss for favorable factors, however, all favorable factors continue to show strong economic growth.

SERVICE SECTOR RESULTS
For June 2005, the service sector recorded a 130 point gain, ending at 58.4 percent. Fueled by growth in new sales and credit applications, favorable factors finished at 66.8 percent; up from 65.1 percent in May 2005. Like the manufacturing sector, the service sector continued to show strong economic gains in all favorable factors. There was positive news among the unfavorable factors as well, with a lower number of bankruptcy filings.

COMPARISON OF JUNE 2005 TO JUNE 2004
High levels of economic expansion are found in both the manufacturing and service sector favorable factors. In a year-to-year comparison, only dollar collections are considerably lower than just one year ago. The index of favorable factors closed at 65.8 percent, down 360 basis points from June 2004.

The index of unfavorable factors also showed economic growth with five of the six factors above the 50 percent level and one right at the neutral level, 49.9 percent for “Disputes”. This growth can be seen in both the manufacturing and service sectors.