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Slowing Economy Affecting Business Payments
added: 2007-11-04

While the U.S. Federal Reserve once again lowered key interest rates in an effort to stimulate the nation's economy, the effects of three major economic headwinds continue to put a drag on business conditions for manufacturers and service providers. According to analysis from leading trade credit insurer Euler Hermes ACI, the slowdown will continue well into 2008, but the chances for recovery are very good.

Euler Hermes ACI Chief Economist Daniel C. North said the survey data suggests that respondents' customers are having difficulty coming up with enough cash to pay their bills on time. "This condition could be a result either of their own customers' inability to pay on time, or perhaps because they have built up too much inventory, which hasn't sold as quickly as planned," he explained.

Whatever the origin of the problem, North said the survey responses reflect the weakness in the economy, which he believes is likely to turn worse over the next few quarters. "So far, the credit managers have been able to contain the triple threat of higher oil prices, the burst housing market bubble, and the lingering effects of tightened monetary policy conditions," he commented. "But the responses from those surveyed suggest that the deterioration in the rest of the economy may be starting to catch up with the credit managers."

North said the manufacturing sector slowed slightly from the month before, but the comments from survey respondents were much more telling than the survey data. "While a large portion of the comments centered on the housing slump, there were comments from several other industries as well, suggesting that the overall manufacturing landscape is being effected," he said. "One respondent in the abrasives industry noted that industry sector was 'seeing some domestic slow down,' while a participant from the newspaper industry commented that 'certain local industries continue to experience severe financial crises, citing cash flow problems, reduced sales, and an inability to get financing.'"

Meanwhile, North said survey respondents in the service sector had a lot to say about the economy in October, "and most of it was not good. The majority of comments predictably focused on the damage the housing market decline has done, but negative comments came from across many other industries as well." Some examples include:
- Electrical equipment: "We're anticipating a slow down in sales for 2008."
- Trucking: "Delinquencies increasing and potential bad debt on the rise."
- Plastics: "We have had several companies close due to their bank not renewing a loan."
- Food: "It is taking at least 25% more time to collect the same money."
- Transportation: "Business is getting tougher, collections are much tougher and it looks like it will be this way for some time to come."
- And finally, from home furnishings came the simple, almost plaintive comment: "Sales are slow."

However, while the economy has continued - and will continue – to worsen, North said he sees a light at the end of the tunnel. "I don't think things are so out of balance that we are looking at something really disastrous. I do think we're going to see very slow growth - if not an outright recession - next year. I don't think it will be deep or long, typically two quarters of some negative growth, but the global economy certainly seems well balanced enough that we'll be able to come out of this alright. Plus you've got the Fed cutting interest rates going forward, and that will certainly have a lagged effect that will cause us to enter a recovery next year," he concluded.


Source: PR Newswire

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