The Tatum Survey of Business Conditions June 2011
Summary as of June 1, 2011
At June 1, the Tatum Survey reflected a continuing slowing in the rate of recovery, now drifting very close to returning to recession. The slowing began to register with our March 1 Survey and has continued for four months as the fragile recovery of last fall and winter seems to have lost its energy.
All of the Tatum Survey indicators are either flat or lower. Looking back 30 days, all indicators are down. The 60-day outlook, relative to the past 30 days, is less down but still suggesting continued weakness going into the summer months.
Based on the Survey results, it is clear to us that Q2 will show a lower GDP growth than Q1 which was lower than the rebounding Q4 of 2010. We wish we could report better news.
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 June 1st, the Tatum Index of Business Conditions declined approximately to 3.6%. In a range of 3 to4 we have a very high correlation with near zero economic growth. Below 3 is recession in the Tatum Index, and the Index was in this range from Oct 07 through August 09. Since August ‘09 the Index has been above 3.0 in every month except September ’10; in all but 6 months (mainly last summer) of the 22 months of recovery, the Index has been above 4.0. We think the most recent 3.6 reading is a significant negative milestone. 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.
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}
Employment
While terminations remain flat or are actually improving slightly, the hiring of new employees is declining
Capital Availability and Pricing
As overall conditions deteriorate, financing gets more difficult. When it starts to look like rain, the banks take away the umbrella. Equity markets have declined recently, suggesting asset values are declining. “Quantitative easing” has had little impact on financing conditions as most of the funding has remained on the balance sheets of the financial institutions.
{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:
June 2011 Tatum Survey of Business Conditions
Sam Norwood, Senior Partner
Glenn Passin, Partner
www.TatumLLC.com
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