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October Credit Managers’ Index Falls as Manufacturing, Service Sectors Dips

November 01, 2018, 07:17 AM
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October’s economic report from the National Association of Credit Management saw significant dips in both the manufacturing and service sectors, indicative of short-term economic bandages such as tax cuts wearing off. Even with holiday shopping beginning, both sectors saw a sharp drop.

Following a period of ups and subtle changes in the market, October’s Credit Managers’ Index (CMI) fell abruptly to its lowest point since April. Declines have been seen across several sectors the past few months—less housing starts, less permits, tariffs on imported goods, etc.—and the tax cuts have begun to lose their luster. The CMI reflects this decline as the combined index reads at 54.5 from last month’s 56.4. While the numbers still remain in expansion territory and do not point toward immediate panic, NACM Economist Chris Kuehl, Ph.D., said this month’s index “joined a parade of party poopers” with a sharp decline seen in most facets of the current market.

Even with a drop off, the favorable factors still sit comfortably in the 60s. The drop is still significant with favorables falling a total of about four points from last month, and the reading coming in at its lowest since April. Unfavorables harbor concern in October as they slipped into contraction territory (scores under 50).

“There has been a pattern as far as slowdowns are concerned. The first phase is that some of the motivation for a growing economy begins to erode. That appears to be what has been seen with the weaker favorable factors and trouble for the unfavorables as well,” Kuehl said. “The next step is that the unfavorable readings begin to falter suggesting companies are starting to face a real crisis from which they may not be able to easily recover.”

In the favorables, the sales category took the biggest hit, dropping more than six points and falling to its lowest point since December 2017. Most of the other categories remained the same as September, except for amount of credit extended, which fell almost three points.

All but two of the categories in the unfavorables are in contraction territory, with October seeing one category, accounts placed for collection, entering contraction. The dollar amount beyond terms category fell more than two points, which is usually a strong indicator of larger issues in the future. Similarly, the filing for bankruptcies category fell considerably to 52.1.

“Up to this point, the various challenges companies have faced have not been as serious as all this, and now that may be changing,” said Kuehl. “This would mean many companies are not very resilient and will need some good luck to survive any kind of a slowdown by the economy as a whole.”

The overall manufacturing score slipped from 56.4 to 54.4, a number reminiscent of April’s steep drop. The numbers in manufacturing are similar to the combined score, with manufacturing seeing unfavorables entering contraction territory and favorables falling to the lower 60s.

Service sector favorables fell just over four points but still remained in the 60s, yet unfavorables also met the demise of the contraction territory, coming in at 49.8. While service usually sees higher numbers in sales this time of year, sales fell more than six points instead. It is possible many retailers bought inventory in the last couple months and dropped off in October. Dollar collections, however, showed the biggest upset in the service sector, falling more than 10 points from 66.5 to 56.4.

Compared to 2017’s October CMI, the service sector is not carrying the economy as it usually does this time of year. Kuehl said this is unusual, and may mean trouble moving forward.

“This was a fairly profound slide and comes at an awkward time,” Kuehl said. “This is the time of year services should be carrying the load, but it isn’t at the moment, while manufacturing generally slides until the first of the year.”

For a complete breakdown of the manufacturing and service sector data and graphics, view the October 2018 report.







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