Tatum/Roulston Report

This month the Tatum survey continued to show the “L” curve with an upward bias is the state of business conditions. The economic recession that technically started in late 2007 in reality struck most businesses in “full force” in September and October of 2008. Although from the outset the year was a slow downturn, in the fall of 2008 business as measured by orders and activity fell suddenly in a 20-30% range across virtually all sectors. Earlier this summer the Tatum survey reflected that credit conditions, orders and backlogs had bottomed. Most other surveys and economists seem to concur.

But unlike so many past downturns and subsequent recoveries, the sudden drop last fall set a new lower baseline. We believe there is a new mindset in most boardrooms. Simply put it seems it does not seem there are catalysts to bounce back. Government stimulus was spotty and limited to random sectors in the last year. Government intervention and regulation are creating a sense of uncertainty not seen since the late 1970s. Budget deficits and Fed stimulus is creating anxiety with little confidence in capital spending and virtually no visibility in order patterns. The Tatum Survey reflects this in the trends of just general sloppiness for the last six months in terms of backlogs, employment and capital expenditures. Companies are reluctant to hire except selectively in spaces of unusual strength (ex. mortgage workout departments). Reduced employment has spurred margin improvements and in the survey there are signs of technology spending to further improve employee productivity.

The bottom line is that the government must extricate itself from the current role in business of perceived obstructionist and concurrently in some cases the sole short term stimulus. Businesses need visibility and confidence in a sustainable future. In this scenario the Fed loose policy supports balance sheet building with mixed signals of improvement. The markets will only digest so much of this before investors will want to see revenue growth.