In April the manufacturing sector stumbled and exchanged positions with the service sector. In March the manufacturing sector was holding its own and provided the sole piece of good news for the index as a whole. In March the news for the service side was not so good, but in April it staged a big of a recovery and much of this appears to be related to the hike in inflation as well as the reactions from the business community most affected by price shifts.
Here are some worrying aspects:
- The number of new credit applications in manufacturing fell to levels not seen since the start of the year.
- In the service categories the fall was even more dramatic—numbers not seen since October of last year.
- Dollar collections were actually down in the manufacturing sector while recovering nicely in the service sector. The sense is that commodity inflation is taking a much bigger bite in manufacturing and is affecting cash flow.
The evidence is pretty strong that business has returned to a more cautious position than they had started to adopt earlier in the year. There is now much more concern about the future of the economy through 2011 and that has caused many businesses to pull back on credit. Given that it was the expansion of credit that had been fueling enthusiasm at the start of this year, one can expect further slowdowns in expansion for the next few months.
There has been a sense that many more manufacturers are struggling than was the case even a few months ago. The number of accounts placed for collection has risen, and there have been more bankruptcies. The other negative factors have not worsened appreciably but neither have they improved—and that is worrisome for an economy that is supposed to be on the road to rebound.
Commentary courtesy of Dr. Chris Kuehl, Armada Corporate Intelligence (a BIIA director)