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August’s Credit Manager’s Index Indicates Economic Momentum

Fri September 22, 2006 - National Edition
Construction Equipment Guide

The seasonally adjusted Combined Credit Manager’s Index (CMI) fell in August from 57.6 to 57.3. The index continued to indicate an economy with good momentum, but it also revealed some pockets of weakness.

While the manufacturing, services and combined indexes were all above the 50 mark, indicating economic expansion, both the manufacturing and combined indexes fell from July’s levels.

All three of the indexes experienced sharp drops in the sales and amount of credit extended components. Drops in these top-line oriented measures bode poorly for continued growth, and confirm other softening macroeconomic indicators such as a weak job market, sluggish retail sales, and easing of inflation, and a housing market that until recently had been widely described as “cooling” and might now be better characterized as frigid.

The manufacturing sector index dropped 1.2 percent in August on a seasonally adjusted basis, as five of the 10 components fell. A 7.7 percent drop in sales led the fall, along with deterioration in the amount of credit extended, accounts placed for collections, and dollar amounts beyond terms.

The services sector index rose by 0.5 percent in August on a seasonally adjusted basis. Despite the increase, the services sector experienced significant erosion in two of the same components as the manufacturing sector; sales fell 2.3 percent and the amount of credit extended fell 4.4 percent. The sales component in the service sector has fallen in six of the past eight months.

On a year over year basis, the combined CMI rose 2.4 percent, while the manufacturing sector rose 3.2 percent and the services sector rose 1.7 percent. Overall, the indices reflect the cumulative effect of a strong economy over the past several quarters.

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