An October to Remember — or Forget

Nightmare month's Credit Manager's Index plunges to record low, as did the manufacturing index of the Institution for Supply Management.
Stephen TaubNovember 3, 2008

The October nightmare lives on as reports stream in about how bad the situation was for corporate finance. In the latest reminder, the October Credit Manager’s Index plummeted to a record low, according to the National Association of Credit Management.

“The misery was spread all around but manufacturing fared the worst,” said Daniel North, chief economist for credit insurer Euler Hermes ACI, who analyzes the data and prepares the CMI report for the National Association of Credit Management.

Meanwhile, the Institute for Supply Management said Monday its that its manufacturing index fell to its lowest level since September 1982. “The PMI indicates a significantly faster rate of decline in manufacturing when comparing October to September,” the group said in its announcement.

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Not that September was that great. The Commerce Department reported today that construction spending fell 0.3 percent in September, the third drop in the past four months.

The reports come on the heels of last Thursday’s release of the gross domestic product for the third quarter, which shriveled by a 0.3 percent annual rate. Consumer spending also suffered its biggest decline in 28 years.

In the Credit Manager’s report, eight of the 10 components fell and nine are now below the all-important 50 level, indicating economic contraction, and eight set record lows. The report also noted that the “accounts placed for collection” component was below 40 percent in both manufacturing and service sectors, suggesting that “customers are trying their best to drag out terms in an effort to get credit in any form they can, because apparently banks aren’t giving any,” Daniel North noted.

“Certainly the economy is in dismal shape after the effects of high energy prices and the housing market bubble burst have been dragging on for some time,” he added. “Now the increasing number of job losses, shrinking GDP, negative real retail sales and a host of other indicators confirm that the recession has arrived.”

In contrast, the stock market Monday again was trying to close in positive territory — the fifth consecutive day that it waged such a battle. At noon, the Dow Jones Industrial average was at 9373.19, up 48.18, although it fluctuated through the morning.

According to North, the seasonally adjusted manufacturing sector index fell 4.2 percent to a record low of 43.7 percent. Nine components fell, all 10 are below the 50 percent level and six set record lows.

The seasonally adjusted service sector index fell 0.9 percent, to 45.9 percent. Six components fell; eight are below 50 percent; and five set record lows. “The climate in the service sector is decidedly more irritable than in manufacturing,” said North. “The manufacturing sector seems more focused on weak demand, but service sector credit managers are more concerned about getting their money back.”

According to the ISM, two industries reported growth in October — Apparel, Leather & Allied Products; and Computer & Electronic Products.

The industries reporting contraction in October were Petroleum & Coal Products; Nonmetallic Mineral Products; Wood Products; Fabricated Metal Products; Furniture and Related Products; Textile Mills; Machinery; Plastics and Rubber Products; Primary Metals; Printing and Related Support Activities; Transportation Equipment; Miscellaneous Manufacturing; Electrical Equipment, Appliances and Components; Paper Products; Food, Beverage and Tobacco Products; and Chemical Products.