Credit Managers: Recession Is Here

Credit managers believe the U.S. is currently mired in a recession. Although the official definition of a recession has not been met — two or more consecutive quarters in which the gross domestic product declines — the most recent monthly Credit Manager's Index (CMI) plummeted a record 3.3 percent to reach a historic low of 47.4. This clearly indicates economic contraction, according to The National Association of Credit Management (NACM), the group that produces the index.

Any reading below 50 indicates the economy is contracting, noted the group. The index is based on a survey of about 800 trade credit managers during the last 10 days of the month. The managers are about evenly split between the manufacturing and service sectors.

The 10 components that make up the index are sales, new credit applications, dollar collections, amount of credit extended, rejections of credit applications, accounts placed for collection, disputes, dollar amount beyond terms, dollar amount of customer deductions, and bankruptcy filings.

Other survey findings from the September study were even less heartening. For example, the NACM says that all 10 components of its combined index — representing both the manufacturing and service sectors — fell, leaving eight components below 50, and seven at record lows. Only dollar collections and amount of credit extended remained slightly above 50.

The manufacturing index fell 2.5 to an all-time low of 47.9, as seven components fell, with a record seven components below 50, and three at their lowest levels ever. In the service sector, the index fell 4.2 to another all-time low of 46.8, as a record 10 components fell, leaving eight below 50 — another record — and three of the components at their lowest levels ever.

The trade association stressed that sales were especially hard hit in both manufacturing and service sectors, falling 12.2 and 10.1 respectively, both to historical lows and both below 50. "While the economy has been deteriorating since the end of last year, its rate of decline is clearly increasing," said Daniel North, chief economist for credit insurer Euler Hermes ACI, who analyzes the data and prepares the CMI report for the NACM. "The combined weight of high energy prices and a ruined housing market is now being compounded by the ever-worsening conditions in the credit markets," he added.