Daily News: August 1, 2012

NACM: ‘Problems Besetting Economy Have Not Abated’

The National Association of Credit Management (NACM) reported its Credit Managers’ Index (CMI) reflects the grim reality of the economy of summer 2012, dropping in July from 54.5 to 53.4. It became obvious in May that another spring swoon was underway, and like the last few years, the summer is becoming an extension of the deterioration.

The NACM said the problems besetting the economy earlier in the year have not abated, and now there are new ones emerging. Thus far it is hard to see what impact the drought will have on the greater manufacturing and service economies, but given that the farm sector helped drive manufacturing last year, the sudden drop in demand for machinery isn’t welcome.

There are some signs of nascent recovery, but these have not been enough to reverse the course of the last few months. If one looks at the favorable factors that usually signal future growth, there is evidence that the slump is setting in more aggressively. For the first time in over a year, sales fell below 60, and by a significant degree. The reading of 58.5 is worse than at any point in 2011.

“This is a precipitous fall, and it is unlikely that a reversal will be swift,” said Chris Kuehl, PhD, economist for the NACM. “When the specifics of the decline are examined, it is apparent that the real damage occurred in the volatile service sector.”

New credit applications stabilized to some degree; June’s reading was 57.5, and now it sits at 57.2. This is a long way from the 61.9 registered in January when expectations were upbeat. There was also a decline in dollar collections, from 60 to 58.7, and rounding out favorable factors with yet another decline was amount of credit extended, which slipped from 62.6 to 61.3. Altogether, the favorable factor index slid from 60.2 to 58.9, marking the first time it has fallen under 60 since November 2011.

To read the NACM July 2012 report, click here.