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Survey Reflects Solid Conditions Overall

The National Association of Credit Management (Columbia, Md.) Credit Manager’s Index for May 2005 perfectly demonstrated the overall position of the U.S. economy: well-entrenched in solid territory but also recently encountering a minor “soft patch.” The Total CMI dropped from 59.3 to 57.3, with the manufacturing sector falling 1.0 to 57.5, and the service sector, driven by deterioration in bankruptcies and dollar collections, falling 3.1 to 57.1. Despite the strong levels of virtually all the components of the Indices, it is useful to note some of the changes this month. The uptick in bankruptcy activity is especially noteworthy as it is 9.4 below last May’s level, and could continue to be affected by troubles in the airline and auto industries. Certainly higher energy prices will continue to ripple through the economy. Dollar collections fell in both sectors as did manufacturing sales, and they suggest, like bankruptcies do, that businesses have somewhat less free cash flow available at the moment.

While the CMI survey reflects solid conditions overall, the economy will continue to face some headwinds in the form of higher energy prices, weakness in Europe and continued interest rate hikes by the Federal Reserve.

The CMI survey asks credit managers to rate favorable and unfavorable factors in their monthly business cycle. Favorable factors include sales, new credit applications, dollar collections and amount of credit extended. Unfavorable factors include rejections of credit applications, accounts placed for collections, dollar amounts of receivables beyond terms and filings for bankruptcies.

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