The Tatum Survey of Business Conditions May 2012
Summary as of May 1, 2012
After 6 months of an upward trend, business conditions have again turned to a negative overall direction this month both looking back 30 days and forward 60 days. GDP data released last week confirmed what we have seen in the past 3 months, very anemic growth, slower than Q4 2011. The Q2 quarter now appears to be starting on an even weaker footing.
Regionally, the Southwest has consistently been the strongest in recent months, benefitting, we think, from strong oil prices and relatively little damage in Texas from the housing crisis. The Southeast is distinctly the weakest region in our Survey and in reports of housing.
Relative to most of the other indicators, employment is less weak, showing again that employment is a lagging, not a leading, indicator. In the past 30 days, Employment was the only positive indicator.
We saw a similar pattern develop in the first half of last year and continuing through the summer. Could there be seasonality in overall business conditions? In the past 10 years of our Survey we have seen this pattern only in the past 2 years, but we are also noting the high consistency of our Survey trends with what later is reported for overall economic conditions.
Tatum Index of Business Conditions
The Tatum Index of Business Conditions is a simple average of the ratio of our respondents who are reporting improvement versus those 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 sharply, reflecting softness in both the past 30 days and in expectations for the next 60 days. The 3-month moving average of the Index also declined for the first time in 6 months.
Order Backlogs
The percentage of respondents who reported an improvement in orders on hand slumped to 27% from 40% a month ago. The percentage reporting worsened backlogs jumped markedly to 14% from 8% last month.
Capital Expenditure Commitments
The percentage of respondents reporting higher commitments to capital expenditures declined to 26% from 29% a month ago. The percentage that committed less on capital equipment increased to 19% from 17%.
Employment
The percentage of respondents hiring more workers rose this month to 24% from 19% last month. The percentage that indicated they did less hiring declined to 9% from 11%. For the first time in memory, there was good news in employment, despite downward trends in other indicators.
Capital Availability and Pricing
The percentage of respondents indicating an improvement in financing conditions declined to 22% from 29% last month. The percentage who indicated conditions were worsening rose slightly, back to 6% from the 5% reported last month.
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: May 2012 Tatum Survey of Business Conditions
Sam Norwood
Senior Partner
www.TatumLLC.com
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