july tatum survey - recovery stalls

Survey of Business Conditions07.01.2009

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Tatum Survey of Business Conditions SummaryAs of July 1, the Tatum Index of Business Conditions changed directions from the prior 6

months, going down from 3.01 to 2.22. The three month average increased from 2.32 to 2.51. At 3+ we were saying the Recession was ending. At 2.2 we are back in the zone of Recession.

The percentage of respondents who said business conditions improved or were expected to improve decreased for the first time this year. The net decrease for the last 30 days was small but more acute for the next 60 days. The same pattern is registered in backlogs and capital availability and pricing.

The results for capital expenditure commitments improved, while the results related to employment statistically did not change from last month.

The nascent recovery might be stalling as the employment situation remains troubling, and energy prices and interest rates have been rising. It would be typical

for employment to lag other indicators of recovery, but a robust recovery cannot occur while unemployment is so high (9.5%).

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Tatum Index of Business ConditionsThe Tatum 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 decreased for the first time in 2009, going from 3.01 to 2.22. The three-month moving average increased from 2.32 to 2.51.

The decrease was fueled primarily by a decline in the outlook for the next 60 days. After several months of experiencing evidence of recovery in business conditions, our respondents reported a flattening in June and a significant

decrease in their outlook. Recoveries are rarely a steady trend. It is too early to tell if this is a temporary setback or the beginning of a new direction. In

either case, as of July 1 we sense the recovery has stalled for now.

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Tatum Index of Business Conditions

5.5 4.8

9.8 9.5

8.5

12.3

5.4 5.2 6.0

5.1

2.2 2.1 1.7 2.0 1.4 1.2 1.5

2.1 2.7 2.6

1.7 2.0

0.9 0.4 0.4 0.5 0.6 0.8

1.7 2.3

3.0 2.2

0

4

8

12

16

12/06

01/07

02/07

03/07

04/07

05/07

06/07

07/07

08/07

09/07

10/07

11/07

12/07

01/08

02/08

03/08

04/08

05/08

06/08

07/08

08/08

09/08

10/08

11/08

12/08

01/09

02/09

03/09

04/09

05/09

06/09

07/09

Index 3 Mo. Avg.

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Business Conditions - TrendsIn the past 30 days, business conditions:

Improved for 22% of our respondents, a decrease from 26% last month.Worsened for 17%, down from the 19% reported last month. Stayed about the same for 61%, compared to 55% last month.

Overall there was only a small change from last month. We interpret this as a modest hesitation from what had been a promising trend in the first

half of 2009.

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Business Conditions the Past 30 Days

30%

24%

24%

18%

15%

13%

10% 12% 16

% 22% 25%

26%

22%

52%

49% 52

%

45%

37%

39%

45% 45

% 44%

51%

56%

55%

61%

19%

27% 23

%

37%

49%

48% 45

% 42% 40%

27% 19

%

19% 17%

0%

20%

40%

60%

80%

100%7/1

/2008

8/1/20

08

9/1/20

08

10/1/

2008

11/1/

2008

12/1/

2008

1/1/20

09

2/1/20

09

3/1/20

09

4/1/20

09

5/1/20

09

6/1/20

09

7/1/20

09

Improved Stayed the same Worsened

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Business Conditions - Trends

The ratio of “Improved-to-Worsened” in the last 30 days decreased from 1.34 to 1.27. This is the third month in a row the ratio has been above one (1).

Teetering on the edge of Recession and Recovery, the past 30 days flattened compared to the promising trend earlier in the first half of 2009. We hope this is just a consolidation to build a base for a more solid period of recovery, but it could also be

the beginning of an extended period of uncertainty.

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Business Conditions - TrendsRatio of “Improved” to “Worsened” – Past 30 Days

0

1

2

3

4

5

Jul-0

8

Aug-

08

Sep-

08

Oct-0

8

Nov-

08

Dec-

08

Jan-

09

Feb-

09

Mar-0

9

Apr-0

9

May-

09

Jun-

09

Jul-0

9

Total

Ratio

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Business Conditions - TrendsIn the next 60 days, business conditions are expected:

To improve for 36% of our respondents, down from 42% reported last month. To get worse for 12%, an increase from 9% reported last month. To remain about the same at 52% compared to the 49% reported last month.

The downturn in the outlook reflects, in part, the flattening seen in the past 30 to 60 days, in addition to the continuing slump in employment

and the effects of higher gas prices and interest rates. Despite the decline in outlook from last month, the outlook remains more positive

than in 8 of the past 10 months.

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Business Conditions - TrendsNext 60 Days

44%

42%

42%

32%

20% 21% 26

%

27% 29% 35

% 39% 42

%

36%

43%

41% 45%

42%

38% 40

%

43% 43% 47

%

50% 50

% 49%

52%

13%

17% 14

%

26%

42% 39

% 31%

30% 24

% 14% 11

% 9% 12%

0%

20%

40%

60%

80%

100%7/1

/2008

8/1/20

08

9/1/20

08

10/1/

2008

11/1/

2008

12/1/

2008

1/1/20

09

2/1/20

09

3/1/20

09

4/1/20

09

5/1/20

09

6/1/20

09

7/1/20

09

Improve Stay the same Worsen

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Business Conditions - TrendsIn the next 60 days:The ratio of “Will Improve” to “Will Worsen” decreased from 4.68 to 3.16.

This is a very sensitive measurement that can shift dramatically. Therefore the 3-month moving average index of business conditions makes it easier to see the overall trend.

This is the first decrease in this ratio in seven months, showing a break from the building optimism that the Recession is in a process of ending. One month does not constitute a trend, but it does signal an amber alert that the recovery will take longer to get traction than

previously thought.

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Business Conditions - TrendsRatio of “Will Improve” to “Will Worsen” – Next 60 Days

0

2

4

6

8

10

12

Jul-0

8

Aug-

08

Sep-

08

Oct-0

8

Nov-

08

Dec-

08

Jan-

09

Feb-

09

Mar-0

9

Apr-0

9

May-

09

Jun-

09

Jul-0

9

Total

Ratio

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Business Conditions – Current ResultsOrder Backlogs

In the past 30 days:The percentage of respondents who reported an improvement in backlogs decreased from 24% to 20%. The percentage reporting lower backlogs decreased slightly from 23% to 22%.

In the next 60 days:The percentage of respondents who indicated expectations of higher backlogs decreased from 43% to 38%. The “Will Worsen” percentage rose from 8% to 12%.

The results for backlogs are reflected in the report of general business conditions. The outlook has turned more pessimistic.

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Business Conditions – Current Results

Order Backlog Analysis

Past 30 Days

Next 60 Days

0%

20%

40%

60%

80%

100%

7/1/20

08

8/1/20

08

9/1/20

08

10/1/

2008

11/1/

2008

12/1/

2008

1/1/20

09

2/1/20

09

3/1/20

09

4/1/20

09

5/1/20

09

6/1/20

09

7/1/20

09

Improved Stayed the same Worsened

0%

20%

40%

60%

80%

100%

7/1/20

08

8/1/20

08

9/1/20

08

10/1/

2008

11/1/

2008

12/1/

2008

1/1/20

09

2/1/20

09

3/1/20

09

4/1/20

09

5/1/20

09

6/1/20

09

7/1/20

09

Will improve Will stay the same Will worsen

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Business Conditions – Current ResultsCapital Expenditure Commitments

In the past 30 days:The percentage of respondents committing more on capital equipment increased from 12% to 14%. The percentage that committed less on capital decreased from 40% to 30%, which is a very positive indicator.

In the next 60 days:The percentage of respondents who said they plan to commit more for capital assets in the next 60 days decreased slightly from 20% to 19%. The percentage who expected to commit less decreased from 23% to 21%.

The concerns shown in the other indicators did not spill over to capital expenditure commitments. Since decisions related to

purchasing capital goods have a longer lead time, the results for this month reflect conditions from recent months.

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Business Conditions – Trends

Capital Expenditure Commitments Analysis

Past 30 Days

Next 60 Days

0%

20%

40%

60%

80%

100%

7/1/

2008

8/1/

2008

9/1/

2008

10/1

/200

8

11/1

/200

8

12/1

/200

8

1/1/

2009

2/1/

2009

3/1/

2009

4/1/

2009

5/1/

2009

6/1/

2009

7/1/

2009

Increased Stayed the same Decreased

0%

20%

40%

60%

80%

100%

7/1/20

08

8/1/20

08

9/1/20

08

10/1/

2008

11/1/

2008

12/1/

2008

1/1/20

09

2/1/20

09

3/1/20

09

4/1/20

09

5/1/20

09

6/1/20

09

7/1/20

09

Will increase Will stay the same Will decrease

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Business Conditions – Current ResultsEmployment

In the past 30 days:The percentage of respondents hiring more workers dipped from 9% to 7%. The percentage that indicated they did less hiring stayed at 23%.

In the next 60 days:The percentage indicating they plan to increase hiring rose from 18% to 20% last month. The percentage who expect to reduce hiring went up slightly from 15% to 16%.

There was no statistically important change from last month. The reported unemployment show that businesses remain cautious

about hiring new employees, putting a damper on expectations for a recovery to get imminent traction.

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Employment Analysis

Past 30 Days

Next 60 Days

0%

20%

40%

60%

80%

100%

7/1/20

08

8/1/20

08

9/1/20

08

10/1/

2008

11/1/

2008

12/1/

2008

1/1/20

09

2/1/20

09

3/1/20

09

4/1/20

09

5/1/20

09

6/1/20

09

7/1/20

09

Increased Stayed the same Declined0%

20%

40%

60%

80%

100%

7/1/20

08

8/1/20

08

9/1/20

08

10/1/

2008

11/1/

2008

12/1/

2008

1/1/20

09

2/1/20

09

3/1/20

09

4/1/20

09

5/1/20

09

6/1/20

09

7/1/20

09

Will increase Will stay the same Will decline

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Business Conditions – Current ResultsCapital Availability and Pricing

The past 30 days:The percentage of respondents indicating an improvement decreased from 25% to 19%. The percentage who indicated conditions worsened went down slightly from 13% to 12%.

In the next 60 days:The percentage of the respondents who expect improvement in financing conditions in the next 60 days decreased from 36% to 31% The percentage saying conditions will get worse stayed at 9%.

The results for this month and looking out 60 days reflect the recent run up in mortgage rates. We also hear that banks are doing more due diligence

before closing on new loans. Both of these factors support the decline in the responses about capital availability and pricing.

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Capital Availability /Pricing Analysis

Past 30 Days

Next 60 Days

0%

20%

40%

60%

80%

100%

7/1/20

08

8/1/20

08

9/1/20

08

10/1/

2008

11/1/

2008

12/1/

2008

1/1/20

09

2/1/20

09

3/1/20

09

4/1/20

09

5/1/20

09

6/1/20

09

7/1/20

09Improved Stayed the same Worsened

0%

20%

40%

60%

80%

100%

7/1/20

08

8/1/20

08

9/1/20

08

10/1/

2008

11/1/

2008

12/1/

2008

1/1/20

09

2/1/20

09

3/1/20

09

4/1/20

09

5/1/20

09

6/1/20

09

7/1/20

09

Will improve Will stay the same Will worsen

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Survey Participation Demographics – IndustryManufacturing/Processing 23%Service 19%Technology 15%Healthcare 14%Financial 5%Real Estate 4%Construction 4%Government 4%Retail 4%Wholesale 4%Other 4%

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Survey Participation Demographics - Markets/RegionsPrimary Geographic Markets

Local 10%Regional 24%National 39%International 27%

Geographic Regions Represented (Total of 277 Responses)

Northeast 14%Southeast 23%Midwest 15%Southwest 16%Pacific 32%

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Survey Participation Demographic Summary

The following are on relative scales from our respondents:

Regions: Industries*:Strongest – Midwest Strongest – Real Estate

Weakest – Southwest Weakest – Manufacturing/Processing* With statistically significant participation

Markets Served: Company Size:Strongest – International Strongest – Large & Pre-Revenue

Weakest – Local Weakest – Small and Middle

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Survey of Business Conditions

Compiled and Analyzed bySam Norwood – Senior Partner

Glen Passin – Partner

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.

july tatum survey - recovery stalls

Documents

business conditions

indicators of recovery

robust recovery

evidence of recovery

slide headlineoverall

nascent recovery

slide headlinethe decrease

month average increased