NACM Credit Index Shows Manufacturing Gains

The housing market is having a continued negative effect on the nation’s service sector according to a major credit index produced by the National Association of Credit Management. However, commentary and analysis by global accounts receivable management provider Euler Hermes ACI shows that the manufacturing sector continues to show growth in spite of a weakened economy.

The seasonally adjusted Credit Manager’s Index (CMI) rose a modest 0.5% in June as a 1.1% increase in the manufacturing sector offset a 0.2% decrease in the services sector. Results throughout the survey showed mostly small changes from the previous month. "The decimated housing market once again weighed heavily on suppliers of building materials in the services industry,” said Euler Hermes ACI Chief Economist Daniel C. North. "This condition seems likely to continue given an increasing supply of homes for sale, sharp declines in housing permits and starts, and the unprecedented fall of median year over year house prices for ten consecutive months.  Somewhat surprisingly, the manufacturing sector continues to expand on the back of an economy which continues to grow, albeit slowly.” Overall the report was moderately positive, reflecting the state of the economy as a whole, North commented.

Sector by sector analysis of the CMI follows:

Manufacturing Sector
The manufacturing sector rose 1.1%  chiefly as a result of improvements in sales and bankruptcies. Indeed, one respondent noted that they "Have had no customer bankruptcy…” and  "…no …collections.” However it is important to note that the data was mixed as only six of the 10 components rose, and that comments from respondents were somewhat more inconsistent than usual, indicating lack of a definitive consensus opinion.

Service Sector
The service sector fell 0.2% as modest improvements in new credit applications and the amount of credit extended were outweighed by small decreases in seven of the other eight components. Once again, the dismal housing market was cited by some respondents as the chief driver of weak performance. One respondent stated, "The housing market is very soft creating less demand for building materials.” Another noted, "Regional builders continue to suffer in the deflated housing market,” while a third cited the housing market as the reason "Profits are down.”

June 2007 vs. June 2006
On a year-over-year basis, the combined index was unchanged at 57.2%, remaining well above the 50 level indicating economic expansion. The services sector fell 1.7%, perfectly offsetting the rise in the manufacturing sector of 1.7%. Certainly part of the relative weakness in the services sector stems directly from the decaying housing market, which has dramatically affected suppliers of building materials. The manufacturing sector index, standing at a solid 58.3%, has been supported by an economy which continues to expand, albeit at a slowing pace.

A complete view of the CMI analysis, including charts and methodology, can be viewed online at NACM’s web site.