November’s CMI Reports Faltering Manufacturing Sector

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NACM’s Credit Managers’ Index Economic Report for November 2010

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The declines came from the indicators that point to debt issues and the struggles of companies that have not managed to get through the recession all that easily.

The progress noted over the last three months in the Credit Managers’ Index (CMI) came to an end in November, at least as far as the manufacturing sector was concerned. The service sector data was a little more encouraging, but not enough to keep growth from stumbling. The combined index posted less than a 0.1 increase, which was barely enough to push the index from 54.9 to 55.0. “The issue was less about demand and growth than the fact that past issues were starting to catch up again,” said Chris Kuehl, PhD, economic advisor for the National Association of Credit Management (NACM). “There was actually a pretty impressive gain in terms of overall sales—from 60.8 to 61.9—even though this factor in the service sector contracted somewhat. There were also gains in new credit applications and amount of credit extended. These indicators suggest real growth in both sectors and match data coming from the Purchasing Managers Index as well as more recent data from the retail community. The declines came from the indicators that point to debt issues and the struggles of companies that have not managed to get through the recession all that easily.”

The dollar collection data showed a substantial decline—from 61.9 to 58.6—and for the most part the index of unfavorable factors demonstrated a similar decline. There was an increase in dollars beyond terms and in filings for bankruptcies as well as in other indicators. The pattern is not unfamiliar to the credit community and based on past data, there was reason to expect some of these results to start showing up. This is a critical time for many companies and some are not ready to address the situation effectively. During the worst of the recession, most companies were in the same position: hunkering down to survive. As the recovery started, the majority of those companies that made it through the worst of the decline maintained a pretty cautious position due to lack of real demand. Now there is some sense that an economic rebound may finally be on the horizon and some companies are starting to gear up for that rebound with more marketing, sales efforts and inventory accumulation. If a few companies in a given sector start to make moves, there is additional pressure on others in that sector to match them. If they are not financially strong enough to make that move, they can swiftly fall behind if the expected sales rebound does not occur on schedule.

Kuehl noted there is another take away from the unfavorable factors category. It appears that companies struggling to stay afloat are now having additional trouble getting access to credit, even if they have some opportunity to expand their business. The banks in general have returned to their more cautious ways and there are widespread reports of limited access to capital. The investment community remains unengaged, leaving companies with only their suppliers for credit. “That same set of limitations applies to these companies and that threatens to impose a stranglehold on credit availability in general,” he said.

This month’s anecdotal evidence also suggests some companies are waiting to see what happens at the congressional level. If tax cuts are not extended, many companies will need to pay out far more than they paid in the past and that has executives holding back a significant amount of capital as a contingency. Presumably, when the tax decision is made, this money will either be put toward the additional tax or released for other uses. There is also discussion over whether other issues concerning small businesses will be addressed—everything from revising the medical reform law to moves to push more stimulus into the economy. One of the areas already recommended for reform is a provision in the health care law that requires most companies to file 1099 tax forms on any contract that amounts to more than $600 a year. NACM views this as a destructive provision for small businesses as it would tend to force them to choose fewer, larger businesses to provide a wide variety of services and products as opposed to several smaller ones, and require additional resources to issue the forms.

The full report, complete with tables and graphs, along with CMI archives may be viewed at

About the National Association of Credit Management
The National Association of Credit Management (NACM), headquartered in Columbia, Maryland, supports approximately 17,000 business credit and financial professionals worldwide with premier industry services, tools and information. NACM and its network of Affiliated Associations are the leading resource for credit and financial management information and education, delivering products and services, which improve the management of business credit and accounts receivable. NACM’s collective voice has influenced legislative results concerning commercial business and trade credit to our nation’s policy makers for more than 100 years.

Source: National Association of Credit Management

Contact: Caroline Zimmerman, 410-740-5560, caroline(at)nacm(dot)org


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