The Tatum Survey of Business Conditions September 2009

Sam Norwood

Summary as of September 1, 2009

A further advance in the Tatum Index of Business Conditions to 4.2 is persuasive evidence that a recovery has begun. Order backlogs advanced strongly, partly as a seasonal move, but an important tangible indication that business is turning up. With very low inventories, a rise in orders will quickly increase the utilization of human and physical assets. However, with physical capacity utilization below 70% and employment on short hours, it will be a while before capital expenditures and hiring will puck up, as seen in our survey responses on these indicators. Financing conditions are continuing to improve slowly.

Index of Business Conditions
Tatum's Index of Business Conditions combines elements of the past 30 days and the next 60 days into one number, summarizing our view of the current overall trend. The current month's index moved up to 4.2 from 2.9 and is now clearly out of the Recession zone. The 3-month moving average has risen for the 8th consecutive month, a very strong indication that a business recovery is under way. 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 weaknes in near-term deliveries of products and services. As of September 1, order backlogs were up strongly in our survey. The outlook for the next 60 days is also positive, suggesting that new orders are expected to continue to rise this autumn. {
More about Order Backlogs}

Capital Expenditure Commitments
Capital Expenditure Commitments were flat with the prior month, and the outlook is for more of the same. With capacity utilization below 70% there is just too much capacity to expect many new commitments except for cost efficiencies, new technologies and new products. There also remain some caution regarding the sustainability of the recovery until employment starts to improve. {
More about Capital Expenditure Commitments}

Employment weakened in the past 30 days. There is still to much slack in the system, and many busiensses are operating on reduced hours. The first response will be to increase hours. Hiring more employees comes later in a recovery. This lagging indicator needs to continue in a positive direction for a sustainable recovery to be assured. {
More about Employment} 

Capital Availability and Pricing
Capital Availability and Pricing are again on the positive track and are expected to continue to improve. While underwriting standards are tougher than before the Recession, money is again available to those who qualify, and interest rates are moderate. {
More about Capital Availability and Pricing}

Segments, Regions, and Markets
The strongest segments among our respondents are Technology, Healthcare and Service. The Mid-west region of the U.S. is experiencing much tougher conditions due to the extended effects of the auto-related problems. Businesses serving international markets are experiencing much better conditions than those in domestic markets due, in large part, to weakness in the U.S. dollar. {
More about Demographics}

We hope you found Tatum's Commentary interesting and useful. We welcome your comments and questions. Click on {
September 2009 Tatum Survey of Business Conditionsto view the complete report.  

Sam Norwood, Senior Partner
Glenn Passin, Partner
Copyright 2009. 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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