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April CMI Recoups Last Loss Through Mfg. Performance

Wed May 30, 2007 - National Edition
Construction Equipment Guide

The seasonally adjusted Credit Manager’s Index (CMI) rose 1.6 percent in April, recouping March’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 percent, and the service sector, which was unchanged,” stated Dan North, chief economist with credit insurer Euler Hermes ACI.

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 in that industry.

“Median prices on existing homes have now fallen for eight consecutive months on a year-over-year basis.”

“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.

The service 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 cited a “slowdown within the housing market” and “higher than normal disputes — more liens filed.”

North said, “On a year-over-year basis, the combined index fell 0.9 percent, 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 percent but the services sector fell 2.9 percent as the decline of the housing market weighed on suppliers to the home building and construction industries.”

The CMI, a monthly survey of the business economy from the standpoint of commercial credit and collections, was launched in January 2003 to provide financial analysts with another strong economic indicator.

The CMI survey asks credit managers to rate favorable and unfavorable factors in their monthly business cycle. Favorable factors include sales, new credit applications, dollar collections and amount of credit extended. Unfavorable factors include rejections of credit applications, accounts placed for collections, dollar amounts of receivables beyond terms and filings for bankruptcies.

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