The Tatum Survey of Business Conditions May 2011

Sam Norwood

Summary as of May 1, 2011

At May 1, the Tatum Survey reflected a continuing slowing in the rate of recovery. After peaking early in the first quarter this year, the slowing of the recovery that we noted in the past two months was extended to the current month. We saw this week that GDP growth slowed to 1.8% in Q1, consistent with our observations. The second quarter is starting out with a continuation of the slowing trend in business conditions.
We do observe that the rate of the downward slope is moderating, and this gives hope that a turn for the better may come in the summer months.
Larger national businesses are reporting stronger conditions, and the mid-sized, regional businesses are continuing to hurt the most. Technology businesses are reporting strongest segment conditions, while healthcare businesses remain in the toughest condition. The northeast and mid-west this month have displaced the southwest as the strongest region. The southeast continues to lag in business conditions vigor.

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 May 1st, the Tatum Index of Business Conditions declined approximately 7% to 5.8. This change reflects a shift from a month ago, with a decline of 16% in the 30 day lookback (compared to a negligible gain a month ago) and a negligable decline in the next 60-day outlook (compared to a significant decline a month ago). To view the Tatum Index of Business Conditions, please click on {Index of Business Conditions}.

Order Backlogs
Order Backlogs
are normally the most tangible indication of relative strength or weakness in near-term deliveries of products and services. After a one-month worsening, order backlogs rose to reflect almost the exact numbers seen two months ago. This is a bright spot in an otherwise relatively moderate character of business conditions. {More about Order Backlogs}

Capital Expenditure Commitments
Capital expenditure commitments are made based on decisions of one or more months in the past. Our Survey indicated that more respondents increased their commitments last month, but also more respondents committed less. We will call this flat. Looking out 60 days, expectations are diminished compared to expectations in prior months. The downward slope in capex commitments is similar to the pattern last summer when growth in the economy stalled. {More about Capital Expenditure Commitments}

It is likely that national employment data will be showing a flat to very slightly improving situation for the month of April, as our Survey indicates, but the outlook is disappointingly subdued. {More about Employment}

Capital Availability and Pricing
Anecdotally, we hear of a relaxation of underwriting standards at the banks. This is good news to the many businesses that have been starved for operating capital for the past 3 years. We believe that the outlook includes an expectation of higher interest rates in response to inflationary pressures. {More about Capital Availability and Pricing}

We hope you found Tatum's Commentary interesting and useful. We welcome your comments and questions. Click on {May 2011 Tatum Survey of Business Conditions} to view the complete report.

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.

Print page