NACM Credit Manager's Index report for December 2006: Credit Manager's Index at lowest level since April 2003.(National Association of Credit Management)

The seasonally adjusted Credit Manager's Index (CMI) fell for the fifth consecutive month in December, and now stands at its lowest level since April 2003. "The Index fell 0.5% as seven of the 10 components declined," said Dan North, Chief Economist with credit insurer Euler Hermes ACI. "Four of the components are now under the 50 level, signaling contraction, the most since March of 2002." The CMI data strongly suggests a slowing economy and remains consistent with data from the rest of the macroeconomy indicating a slowdown: weak GDP growth for two consecutive quarters, durable goods orders (ex-transportation) falling for two second consecutive months, modest holiday sales and signs of weakness in the labor markets.

The manufacturing sector has shown an increase in the past two months, primarily on sales, boding well for the future months. But comments from survey participants and a closer look at the data still show signs of weakness. "Five of the 10 components fell, but they were offset by relatively large increases in just three components: sales, new credit applications and filings for bankruptcies," said North. "Without these three, the manufacturing index would have fallen 0.3%." Indeed, one participant describes an increase in "customers who 'cannot pay'" while another labels the residential housing sector as "almost at a standstill."

The service sector ...