July's Credit Managers' Index (CMI) continued to show that the economy as a whole is stuttering. The overall index remains above 50, but not by much, and these levels have not been seen since late last year when the index was down to 52.9 in December. As recently as April, the combined index was up to 56.5; it now sits at 53, and there are signs that this decline could continue into next month and possibly longer. "The fall is not as dramatic as when the recession started to wind up in 2008, but the trend is far from encouraging as there are weaknesses showing up in both the positive and negative categories," says NACM Economic Advisor Chris Kuehl, who issues the CMI for the National Association of Credit Management (NACM) each month.
For the second consecutive month, sales declined, which is consistent with the data coming from the retail community and also with the reported declines in consumer confidence. The level of sales had exceeded 60 for five months and only barely slipped back to 59 in June, but has now dropped to 57.2. Much of this is tied to the slip in inventory buildup in the manufacturing sector, but the service sector is declining as well. The fact is that businesses and consumers alike have become cautious with their funds and that is manifesting itself in a retrenchment in sales.
When one looks at the CMI trends over the last several months, it is apparent that companies have been making some very careful decisions about cash flow and exposure, and it is evident that consumers are doing much the same thing. "The last couple of months have seen some pretty solid earnings reports, but these extra profits in the corporate community have not been working their way into more job gains or into overall business expansion," explained Kuehl. This money is being saved and the cash is being used to reduce financial exposure.
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