There has been a great deal of concern in the financial sector in the last month as the world reacts to the mounting threats from the "Greek disease." While it has been acknowledged that the crisis is disrupting the markets in Europe as well as the rest of the world, there has been relatively little impact on the rest of the global economy to this point. The data from May's Credit Managers' Index, issued by the National Association of Credit Management (NACM), seem to suggest that this turmoil is having an impact on the U.S. credit and business community-perhaps more than most people realize.
"Over the last few years the CMI has tended to be a harbinger of things
to come as far as the overall economy is concerned as it presages the
activity in the credit and financial communities," said Chris Kuehl,
Ph.D., NACM economic advisor, who prepares the CMI report each month.
The CMI dipped in 2008, three months before the rest of the economy
started to react to the banking debacle that engulfed the U.S. and the
rest of the world soon after. Now the CMI is dipping again-and
dramatically-while at the same time the rest of the economic indicators
have barely started to respond. "The sense among observers has been that
the Greek crisis and its implications would soon have the same kind of
impact on the credit environment that the sub-prime crisis had in 2008.
Last month's data seems to bear this out."
Kuehl noted the
growing signs of distress in credit circles in the last few weeks, the
most obvious being the rise of the London Interbank Offered Rate (LIBOR)
to a point not seen since July 2009. The LIBOR is the benchmark for
banks making short-term loans to one another and often determines the
rates that drive the rest of the economy, more so than the interest
rates set by central banks. "A growing concern among bondholders, about
the viability of the European economy, has caused some wild swings in
both bonds and equities," said Kuehl. "The data from the CMI is both
reflecting this and anticipating some more trouble in the future."
There has been deterioration in both the positive and negative factors
across the board, although the service sector has been hit harder than
manufacturing. Sales have slipped from 65.7 to 64.5 which is not a
dramatic reduction, but comes after five months of steady increases. The
level of dollar collections fell as well-from 62.1 to 59.7-as some
business sectors struggled to keep pace with the nascent recovery. There
was also a reduction in the level of credit as the financial system
Some of the more urgent changes took place in
the negative categories. The dollar amount of customer deductions fell
from 55.7 to 51.8. There is a sense that accounts have become nervous
again and have started to worry about their access to capital in the
coming months as well as their ability to keep generating sufficient
demand to maintain their growth expectations. "There is not the level of
panic that existed in the months leading up to the credit meltdown, but
there is far more concern about what is happening in the global markets
than existed even a few weeks ago," said Kuehl. "The fact that the
major concern is rooted in Europe is slightly better news than if it
were motivated by another meltdown in the U.S., but it is entirely
possible that the Greek disease will spread."
The full report, complete with tables and graphs, along with CMI archives may be viewed at http://web.nacm.org/cmi/cmi.asp.