The Tatum Survey of Business Conditions July 2011

Sam Norwood

Summary as of July 1, 2011

At July 1, the Tatum Survey conveyed relatively flat indications for the immediate past but growing uncertainty about the future. As our respondents report on the past 30 days, they are generally flat with slight improvements in capital expenditures and hiring. This suggests that economic activity is continuing at a very low rate of growth but not recession. The 60-day forward outlook is more murky as fewer of our respondents are expecting conditions to get better while, at the same time, fewer are expecting conditions to get worse.

While there are glimmers of improvement in some aspects of the past 30 days, the 60-day outlook suggests continued weakness going into the summer months.

Based on the Survey results, we are concerned that Q2 may show a lower GDP growth than Q1, which was lower than the rebounding Q4 of 2010. The outlook suggests that the next 60 days will see further deterioration.

Companies in our International Survey classification remained particularly soft this month, reflecting the global slowdown.

Index of Business Conditions
Tatum’s Index of Business Conditions is a simple average of the ratio of our respondents who are reporting improvement versus those who are reporting a worsening in business conditions for the past 30 days and the next 60 days.

As of July 1st, the Tatum Index of Business Conditions declined to approximately 2.7 from 3.6 a month ago, with the decline being driven by the outlook, not the recent past. This is the 5th consecutive month of decline. In a range of 3.0 to 4.0 we have a very high correlation with near zero economic growth. Below 3.0 suggests recession in the Tatum Index, and the Index was in this range throughout the recent recession. Since the end of the recession nearly 2 years ago, the Index has been above 3.0, except for the month of September 2010. To view the Tatum Index of Business Conditions, please click on
Index of Business Conditions}

Order BacklogsThe near term prospects for businesses that ship and deliver services based on prior orders have worsened, although the outlook for order backlogs is not as depressed, relatively, as actual current backlogs.
{Order Backlogs}

Capital Expenditure Commitments
Capital expenditure commitments are made based on decisions of one or more months in the past. We judge this report to be worse looking back 30 days and about flat in the 60-day outlook. Cash is accumulating on the balance sheets of companies that made the tough adjustments during the recession and are currently profitable. It appears that capital expenditures being committed currently are not so much for expansion as for modernization, replacements, productivity improvements and regulatory compliance. Compared to other indicators, these commitments are relatively holding up. 
{Capital Expenditure Commitments}

The employment indications have remained essentially flat for the past three to four months. There is no distinctive trend.
{More about Employment}

Capital Availability and Pricing
Our respondents have reported very little change in actual financing conditions in the past 5 months. However, the outlook has deteriorated and become more uncertain as can be seen by the broadening of the middle (declining expectations for improvement and a slight decline also in the proportion expecting financing to get worse).
{More about Capital Availability and Pricing}

We hope you found Tatum's Commentary interesting and useful. We welcome your comments and questions. Click the link below to view the complete report:

July 2011 Tatum Survey of Business Conditions

Sam Norwood, Senior Partner
Glenn Passin, Partner
Copyright 2011 Tatum, LLC All Rights Reserved.

Any use or reproduction of the contents of this report without the written consent of Tatum, LLC is strictly prohibited. The authors are not engaged in rendering legal, investment or other professional services by publication of this report. Information contained in this report should not be used as a substitute for professional advice, legal, investment or otherwise, on any particular issue.

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