CMI: Manufacturing decline suggests cash-flow problems

The manufacturing sector dropped 1.7 percent on a seasonally adjusted basis as seven of the 10 components of the index fell.

“Sharp declines in the accounts placed for collections and dollar amounts beyond terms components accounted for much of the drop, suggesting cash flow difficulties,” said Dan North, chief economist with Euler Hermes, ACI, in a news release.

One respondent reported that “customers are disputing more and slowing payments,” while another noted “everyone is … taking longer terms without approval.”

According to the index, the housing market continued to negatively affect respondents’ businesses. Housing starts, permits and unit sales are all down nationwide, and the supply of unsold homes is growing.

The service sector fell 0.7 percent on a seasonally adjusted basis, as five of 10 components fell. Once again, survey respondents pointed to the housing sector as the major cause of their woes, North said.

North said inflationary pressures are under careful scrutiny, particularly because if rising material and labor costs accelerate consumer inflation, “the Fed might be forced to start raising interest rates again. And higher interest rates would put the health of the economy at significant risk.”

On a year-over-year basis, the combined index fell 1.6 percent to 56.

“Over the past 12 months, the manufacturing sector has outperformed the service sector,” North said. “The manufacturing sector fell 0.9 percent (year to year) as five of the 10 components fell, but the service sector fell 2.4 percent as eight of its 10 components fell.”

The CMI is a monthly survey of the business economy from the standpoint of commercial credit and collections professionals, conducted for the National Association of Credit Management. Credit managers are asked to rate favorable and unfavorable factors in their monthly business cycles.