CMI Reveals Business, Economic Conditions Are Looking Up

Tue December 27, 2005 - National Edition
Construction Equipment Guide

The Credit Manager’s Index (CMI) rose to 57.4 in November, above October’s 56.6.

The Index is now 1.2 percent higher than last November and represents solid economic growth. An improvement in bankruptcy filings of 9.6 percent in manufacturing and 8.2 percent in services contributed most to the gain — a result of the rush to file for bankruptcy before the October deadline introducing more creditor-friendly bankruptcy laws.

However, Dan North, chief economist of EulerHermes ACI, noted that this improvement was offset by a sharp deterioration in November sales, a pattern likely to be repeated in December as orders typically plunge after the peak holiday season. Aside from these offsetting effects, North said, “It is worthwhile to note that both dollar collections and dollar amount beyond terms improved significantly, both for the month and the year … this data suggests that buyers are able to make payments more easily and are likely to be in better financial health, and that business and economic conditions are looking up.”

For the manufacturing sector, a drop in new sales was counter-balanced by a lower rate of bankruptcies for the month of November. Credit managers reported that sales dropped from 68.9 percent to 60.7 percent, or 280 basis points. However, lower numbers of customers filing for bankruptcy pushed the manufacturing CMI up 180 points, to finish at 57.8 percent. Fewer disputes coupled with less payments going beyond terms also contributed to the increase shown in the CMI.

The overall service CMI remained virtually unchanged, decreasing slightly by 10 basis points. The service CMI ended November at 57.1 percent. Although there was little overall change in the CMI, fluctuation appeared in both the favorable and unfavorable factors. A drop in new sales and credit applications, down 550 and 640 points respectively, contributed to the slight decrease in favorable factors. Similar to the manufacturing sector, fewer numbers of bankruptcies, disputes and more customers paying within terms helped to improve the unfavorable factors.

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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