The seasonally adjusted Credit Manager's Index (CMI) fell 1.8% pointsin October, reflecting a widespread deterioration as eight of the 10components fell. While all but one component remain above the 50% levelindicating economic expansion, it was the third consecutive drop forthe combined index. "In addition, the drop was led by a sharp fall inthe sales component of 7.2% points, an unsettling number since adecrease in sales can suggest a deterioration in future businessconditions as well," said Dan North, Chief Economist with creditinsurer Euler Hermes ACI. "The credit managers in the survey areconfirming what other macroeconomic data suggest; the effects of atightening monetary policy and a dismal housing market are taking atoll on the health of the economy."

Manufacturing Sector

North noted that the manufacturing sector fell for the third straightmonth, declining 2.1% points. The decline was led by sharp drops in thesales component of 6.3% points, and in dollar collections of 6.2%points. "Such declines in favorable factors point to the possibility ofa continued slowing," he commented. "Survey respondents said 'domesticsales are slower' and 'we have seen a slowing in the economy and salesorders'."

Service Sector

Summing up the service sector, North said, "The index fell 1.4% points,driven by an especially sharp decline in sales of 8.2% points—thesecond largest decline ever, and the third in four months. Onerespondent brought the data into sharp relief by saying, '…we aredefinitely seeing the beginnings of a downward trend.' Anotherrespondent's comment that 'people trying to stretch terms is totallyout of control' is reflected by declines in the dollar amounts beyondterm and the dollar amounts of customer deductions."

October 2006 vs. October 2005

Over the past 12 months, the manufacturing index has fallen 1.4%, theservices index has fallen 2.1% and the combined index has fallen 1.8%.Six of the 10 components in the combined index have fallen in the pastyear, led by a plummet in the sales component of 13.8%, as sales fell12.3% in manufacturing and 15.3% in services. "The only true brightspot was the improvement in bankruptcies, but even that was a one-timedistortion caused by a change in the bankruptcy laws," said North."Indeed, if the bankruptcy component were removed, the manufacturing,services and combined indexes would have fallen 2.6%, 3.9% and 3.3%instead of only 1.4%, 2.1% and 1.8%, " he continued. "The year overyear data confirms what the monthly data suggest: a decent economy thatis being steadily eroded by a tightened monetary policy and a dismalhousing market."

Methodology Appendix

The CMI data has been collected and tabulated monthly since February2002. The index, published since January 2003, is based on a survey ofabout 500 trade credit managers during the last 10 days of the month,with about equal representation between manufacturing and servicesectors. The survey asks respondents to comment on whether they areseeing improvement, deterioration, or no change for various favorableor unfavorable factors. There is representation from all States, exceptsome of the less populated such as Vermont and Idaho.

To view the entire index, including graphs, click here :
http://www.nacm.org/resource/press_release/CMI_current.shtml