Wednesday, October 01, 2008
No One's Going To Like This
NACM publishes a monthly survey of credit managers. This survey is the most direct and precise measurement of credit granted by businesses to businesses. The amount of B2B credit is more than commercial bank loans, and it is a crucial component of activity in both the service and manufacturing sectors. The credit provided is financed by credit to businesses from banks and money markets as well as business profits. As anyone can see by tracking the Daily Treasury Statements or by looking at GDP numbers, business profits are down, and now commercial credit is retracting.
September's NACM report is very bad indeed as you can see from the graph above, which is excerpted from the report. Manufacturing leads services, so next month is going to look uglier. From the commentary:
When credit managers sent their responses in this month, they also sent along a message: “Welcome to the recession.” The seasonally adjusted Credit Manager’s Index (CMI) plummeted a record 3.3% to reach a historic low of 47.4, clearly indicating economic contraction. The survey resulted in numerous other negative records. All 10 components of the Combined Index fell, leaving eight below 50 and seven at record lows. The manufacturing index fell 2.5 to a record low of 47.9 as seven components fell, leaving a record seven components below 50 and three at their lowest levels ever. In the service sector, the index fell 4.2 to a record low of 46.8 as a record all 10 components fell, leaving a record eight below 50, and three of the components at their lowest levels ever. Sales were particularly hard hit in both manufacturing and service sectors, falling 12.2 and 10.1 respectively, both to historical lows and both below 50. “While the economy has been deteriorating since the end of last year, its rate of decline is clearly increasing,” said Daniel North, chief economist for credit insurer Euler Hermes ACI, who analyzes the data and prepares the CMI report for the National Association of Credit Management. “The combined weight of high energy prices and a ruined housing market is now being compounded by the ever-worsening conditions in the credit markets,” he said. “In response, the Fed has cut interest rates and pumped hundreds of billions into the banking system, but no one will lend for fear that the financial system is on the verge of a meltdown. The credit markets need a big shot of confidence to be unclogged, or credit managers will become increasingly gloomy.”The big drop was in services, and the magnitude of the drop appears to indicate that credit problems were the strongest driver last month.
Extremely bad leading indicators:
Manufacturing: Sales of Credit: -12.2 to 45.2 Amount of Credit: -5.8 to 56.2 Services: Sales of Credit: -10.1 to 45.4 Amount of Credit: -6.5 to 51.5These numbers show that current clients are transacting at a lower level, but new business has fallen through the floor.
ISM Manufacturing came in very poorly as well at 43.5, with exports growing, supplier deliveries slowing, and production, new orders and employment contracting. New orders for September clocked in 9.5% less than for August.
Contrast this to Chicago PMI:
The difference is that Chicago PMI tracks current activity mostly, and both NACM and ISM are more forward-looking.
The data confirms a classic and pretty severe credit contraction which indicates a very poor fourth quarter and a pretty sharp recession. The cause appears to be a withdrawal of working capital from manufacturing and the global downturn. There's nothing much anyone can do about global circumstances, but the US should try to address commercial credit issues.
One other report contains relevant data - the business portion of G.20. However there is a long lag - we just got July data.
Continuing from the previous thread, I appreciate your thoughtful responses.
I would encourage you to take just a couple minutes to view these clips.
This first one (about 4 minutes) is with Couric asking both Biden and Palin about Roe v. Wade, and then she asks a follow-up as to what other Supreme Court decisions they disagree with.
(My comment: One can disagree with Biden's views, but one cannot deny that he has informed opinions -- that he knows the issues. Palin, when it comes to the "other Supreme Court decisions" question cannot field an answer. This, to my mind, is an important qualitative difference.)
This second clip (about 10 minutes) centers on foreign policy.
I would encourage you to spend 15 minutes to views these clips.
(My comment: The one that jumps out at me is the question about democracy in Gaza. She appears to have no idea about the import of the question -- she moves to a non-answer about Iran.)
I would ask you to imagine what you would think if Obama gave answers like these.
You're absolutely correct that this is off topic. However, the topic was broached on the previous thread.
Furthermore, I do believe that the election of the next president and vice president of the country is a momentous decision.
I would point you to the previous thread for background on my views.
MaxedOutMama said she had been so busy that she hadn't see the Couric interviews, and so I posted these links to make it easy for her to get a flavor for those interviews.
Look, I'm a Republican, as I said in the previous thread, and it gives me no pleasure to not vote for the Republican nominee for the first time in 36 years. But as an American, I think it is imperative that every voter gathers as much information about the candidates as possible.
It is in that spirit that I have written these entries.
I'm sorry if I have offended any readers.
P.S. I'll probably just leave the President/VP entry blank on my ballot.
Thanks for the links.
Here's the part I found interesting.
Couric: Do you think there's an inherent right to privacy in the Constitution?
Palin: I do. Yeah, I do.
Couric: The cornerstone of Roe v. Wade.
Palin: I do. And I believe that individual states can best handle what the people within the different constituencies in the 50 states would like to see their will ushered in an issue like that.
So, how does one square a belief in the right to privacy AND support Roe v. Wade.
We're seeing our customers payments on invoices vs credit terms being stretched every month. We're holding multimillion dollar orders from shipment until the backlog of AR is cleaned up. And we're an international business.
We're monitoring payment on LC jobs very closely, especially those with milestone invoicing as part of the contract. If we don't have our 70% milestone payments in house by shipment we are now not shipping. At end of month and end of quarter that makes the sales guys mad but we need payment period.
We're demanding increasingly large down payments on very large projects ($50 mil - $600 mil) to ensure we at least break even in case of a failure to pay and that we have cash in hand to pay for the materials and personnel to pull this stuff off. Given demand customers still have no problem agreeing to these terms which is great fore us from a cash flow position. I'm curious to see how long it lasts.
Don't listen to Teri.
And don't apologize for doing what any American should be doing: searching for as much information about all candidates as they can.
We probably don't agree with each other about much politically, but I respect you.
Keep up the good work.
Why don't you give people a break?
Have you ever run into a "Wretched Urgency" Christian, driven to "Save Your Soul (TM)" by any means whatsoever? Just making eye contact for an instant triggers the high-pressure sales pitch. And when driven by Wretched Urgency for The All-Important Cause, being "the least bit pleasant" takes time and energy away from The Cause, and "giving people a break" means the potential convert might get away "unsaved".
Every couple years its like an army of high-functioning autistic people come out of the sky to talk about abortion, come hell or high water.
MoM: credit is contracting
dumbass: OMGWTF?!?! random politician wants to personally kill fetuses and eat them!
YT: I'm hungry, who wants subway?
dumbass: OMG you know who can't have subway?! The working poor who can't have abortions if random politician gets their way!
YT: why is foam coming from your mouth?
dumbass: OMG you nazi [stabs YT]
YT: stop that.
I say all abortion machines have a satellite feed that can cut power. This feed provides the status of a switch placed at the center of thunder-dome. Any group that really really cares is welcome to put a constant stream of lawyers into thunder-dome to fight to the death over what state the switch is in.
Ok, serious question:
Does the ISM manufacturing PMI number at the bottom of the CMI tables taken from the Institute of Supply Managment or is the CMI report doing a similar calculation?
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