Credit managers cautious on second half
July 12, 2006,
Columbia, Md. – Bounding back from a deep slide the month before, and winning back all of its losses, a monthly gauge of business credit conditions climbed by 2.3% in June, suggesting an economy still growing, if at a much slower pace, the nation's business credit managers reported.
Driving the comeback were two key components of the index, the amount of money overdue and accounts placed for collection, suggesting "that customers have experienced an improvement in cash flow," said Dan North, chief economist with credit insurer Euler Hermes.
But striking a cautionary note, he said May's trough reading of 54.9 was the lowest since October 2005, suggesting that "while the economy is still growing, the rate of growth is declining."
Underlining the issue of slowed growth, North pointed to a Federal Reserve Bank statement: "Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year; partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices." Put another way, said North, "the three major headwinds on the economy are starting to take effect."
Leading the June recovery was the manufacturing sector, which reversed last month's losses, returning to a reading of 56.6. Driving the comeback was a big 9.6% improvement in dollar amount beyond terms.
The service sector recovered much of the May drop, once again led by improvement in dollar amount beyond terms.