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Tuesday, April 01, 2008

NACM Shows Outright Trade Credit Contraction

This represents a failure of Fed policy.

Manufacturing trade credit worsened in March. It is still at 51 overall, but overall sales are ominously low. This is the second month that services came in below 50, and it is the sixth month in which the service index has declined.YoY, the total index is now down 4.6%, manufacturing contracted 2.5%, and services contracted 6.6%.

We know that consumer spending will continue to worsen for some months regardless, and an outright contraction in trade credit is clear proof that costs and conditions have decisively moved the financial turmoil into the main economy.
Whatever growth and stimulus there is from better manufacturing conditions for some industries, it is not overcoming the overall weakness. Contractions in trade credit and in bank credit feed off each other.

In February the combined index was neutral. Other than that it has fallen for the last seven months, and this month's decline was by far the largest.

This report makes it nearly impossible for 2nd quarter GDP to end in positive territory.

Congress ought to be considering some sort of commercial stimulus.

Dan North's comments:
North said, “It would appear that trade credit conditions in the manufacturing sector are beginning to succumb to the weight of the economy.”
I strongly recommend reading the entire report. It is too early for the bulk of the rate cuts to have had an impact on the economy. Given that much of the rate increases are related to re-recognition of risk (call it deferred risk recognition), it is not even clear that the Fed can cut enough to counterbalance the effect of risk-related rate increases.

Dan North suggests improvement at the end of 2008 or early 2009. I suspect that may be too positive an outlook. If there is improvement, I would expect it to fall off rapidly resulting in a double-dip recession.


Thanks for your posts on the NACM reports -- they are really useful.

I'm trying to figure out why we're seeing more strength in jobless claims and manufacturing sentiment than the weakness in retail spending would suggest. One reason is the export sector is strong. The other, perhaps, is that claims and the ISM are disproportionately impacted by large firms, while this downturn is hurting smaller firms.

So my question is, do you think the NACM numbers fit within that overall thesis? I'd also expect to see more weakness in the ISM services number (and in retail sales) and continuing declines in Proprietor's Income.
The last income and spending report did show declines in proprietor's incomes. There have been spotty declines. Mind you, those numbers are imputed and are sometimes substantially revised, so I don't pay too much attention to them at the time they are released when economic conditions are changing.

I really have to wait until the end of April to get a strong sense of the small/big split. Treasury receipts show the different pattern during quarterlies. My hunch is that the smaller firms are getting hit worse, but that may not be so.

I think the weakness in retail spending is related to weakness in income, but that the job situation is improving in some areas even while it's worsening in others.

My best hunch is that NACM is showing us the pinch between costs and ability to pass those costs on in this environment. For long forward contracts, it is a definite squeeze.

I was wondering about your statement of americas standard of living coming down? Sense more things become globalized do you believe that this is the transition to a lowers standard of living? Who do you think will be the most effected by this. Do you think that certain industries such as technology have already gone through this major transition?

I believe you'll be able to tell when the economic situation begins to turn seriously worrisome when people begin to post gibberish on your site in an attempt to pick up some cash.

Am sure none of you want to get
seriously depressed by checking out
economyincrisis web site with National manufacturing,selling off U.S. cos., and jobs outsourcing figures. It's been around for a few years.

Don't want to get into politics.
Have been thinking for a while that
this form of govt. is not all that good for a huge developed country.
The country is too large.(yes, great respect for courage and thinking of the Founders). And,this massive immigration & effects should have been checked 10 yrs. ago ... Seems to me it's all been against logic and planning for effects of any bill, etc.
It's been just massive repulsion of Communists' Five Year Plans. It's a govt. run by lobbyists plans with no logic & cost efficiencies, no planning for our in-country interests and actual real life effects on our own citizenry.

SI - it's okay for lobbyists to lobby for interests, but it's deathly when those claims prevail in violation of the overall public interest.

It's almost as if the one thing not lobbied for is the overall public interest. We have schemes to promote everything under the sun except the general welfare of the republic and its people.
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