WASHINGTON (MNI) – The following are excerpts from the National
Association of Credit Management July report on credit availability,
showing the combined index at 54.6, vs 54.2 in June and May, published
Friday:

Combined Sectors

The best that can be said about this month’s Credit Managers’ Index
(CMI) is that things did not get appreciably worse. The latest data
suggest a third month of slump, and it appears the economy is
languishing in a state that is not quite in crisis but which isn’t
showing energy either. For the third month in a row, the overall index
was slightly over 54. The fact that it went up by .4 is nothing much to
cheer, as the overall index had been over 55 for the six months prior to
May’s slip. “If there is anything to be somewhat encouraged by it is
that manufacturing improved over the really down month last July, but at
the same time there was weakness in the service sector that didn’t
appear the previous month,” said Chris Kuehl, PhD, managing director of
Armada Corporate Intelligence and economic advisor to the National
Association of Credit Management (NACM).

Very little changed as far as favorable factors were concerned.
Sales were essentially flat at 60-slightly down from 60.8-but that is a
pretty solid sign given the declines noted in other areas. “It appears
sales numbers have started to stabilize and are not that far from the
highs reached a few months ago when they crested at 66.3,” said Kuehl.
The biggest decline was in dollar collections-from 58.1 to 56.2. There
have been other signs that collection activity has been slowing, which
is consistent with the overall assessments of the economy of late. “In
comparing the CMI readings to other indices, it is apparent the economy
has still not committed to either continued growth or a real decline,”
said Kuehl. “There have been some positive signs from the latest set of
leading economic indicators released from the Conference Board, but
there have also been renewed signs of distress as far as consumer
confidence is concerned. Not surprisingly there is a sense that much has
stalled in the economy as uncertainty has been the rule of the day.”

Unfavorable factors don’t show signs of increased stress and there
isn’t a lot to suggest much panic-at least not yet. There was a pretty
solid improvement-from 50 to 55.6-in the dollar amount of customer
deductions. This was accompanied by modest improvements in the number of
rejected credit applications, which improved from 50.9 to 51. There was
also improvement in the number of disputes, from 49.3 to 50. “These are
not major shifts by any stretch of the imagination, but at least they
are not trending downward any further,” said Kuehl. The overall index
barely changed and the manufacturing and service sectors have simply
swapped positions again as far as stress is concerned. The CMI numbers
for the last three months show a general slowdown in business activity.
There has been a slump in sales, a reduction in the number of new credit
applications and a slowdown in the collection process. The economy is
essentially stalled and the question is whether this is a reaction to
something short term or a reflection of some greater underlying trend.
The CMI data hint that the situation is temporary and related to
uncertain factors gripping the economy. Much of this information is more
anecdotal than anything that can be pinned onto hard data. The majority
of the information from the banking sector suggests there is money to
borrow. There is available trade credit according to most sources.
Businesses are sitting on more cash than they have in a long time and
most companies are not having issues paying their bills. The problem is
that almost everybody is worried about contingency plans and are sitting
back as they wait for something to change.

The demand needed is not there yet and nobody is quite sure why.
The jobless situation is certainly a worry, but the fact is that 91% of
the workforce is employed. They are nervous about spending and as long
as they stay on the sidelines, the manufacturing community does as well.
“There are few in the mood to leverage themselves until they have a
better sense of what to expect from the government and from the economy
as a whole. Everything is more or less in place for expansion, but there
has been no trigger thus far and there is plenty to make people more
nervous about the future,” said Kuehl.

—

Manufacturing Sector

For the last two months, the manufacturing sector has been down and
the service sector managed a decent recovery, but this month their
positions seem to have reversed. There are signs that some enthusiasm in
manufacturing has managed to return. Sales regained some lost momentum,
although it is a long way from the 66.6 levels reached last December.
While the sales data still falls below the 60 mark, it is up to 59.3
from the 58.5 posted last month. There was also a nice jump in the
number of new credit applications-which rose from 54.5 to 56.4-but the
level was at 60.6 just four months ago, so there remains a long way to
go. Improvements were noted in the amount of credit extended as
well-going from 59.2 to 61.2-and that was the only favorable category
that crested above 60 this month. (In April all four of the
manufacturing sector’s favorable factors were above 60.) The overall
gain in the favorable index went from 56.9 to 58.1. It doesn’t alter the
fact that in April it stood at 62.7 and in May it was still at 59.5. The
trend is moving in the right direction, but there is ground to make up.

There was a bit of a mixed message when it came to manufacturing’s
unfavorable factors. On the one hand there was some really good news in
terms of dollar amount of customer deductions, as the index moved from
49.5 to 61.2. This was by far the most dramatic change the index has
seen in years. The highest this factor had been prior to this month was
50.1 in February; now it is well over 60. This alone tended to drag the
whole set of unfavorable categories in a more positive direction. There
were other minor improvements in areas such as disputes and
bankruptcies. The index numbers that did not improve also didnft worsen
much. This was a pretty steady state month in most respects. In total
the index moved from 53.4 to 54.9 and that helped push the composite
index into positive territory given the slump in the service sector
readings.

The unusually high number in the customer deduction category is
reinforced by the fact that many companies are not really having the
kind of cash flow issues they reported earlier in the year. The point
made by many analysts is that companies are sitting on their cash and
that banks are sitting on their money as well.in part because there are
few that are interested in a loan at the moment. This may be a further
indication that the entire business community is in a waitand] see
mode. The numbers of bankruptcies are also down and that is yet another
indicator that business is not really growing, but it isnft in big
trouble yet either.

The good news is that manufacturers seem to be sitting on enough
cash to handle their bills, for the moment. The bad news is that there
is not much growth and at some point this lack of activity will start to
cut into those reserves. Companies will have to either start growing
their revenues and profits, or they will have to return to aggressive
cost cutting and that means more job losses and another delay in demand.

-more- (1 of 2)

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: MAUDS$,M$U$$$]