Dec 2009 Tatum Survey

Survey of Business Conditions

12.01.2009

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Tatum Survey of Business Conditions SummaryAs of December 1, the results for the past 30 days show a modest respectable increase, up 10%. But

that was more than offset by a significant drop of 40% in those who see improved conditions in the

next 60 days. The ratio of those who see improvement in the next 60 days compared to those who see

worsening fell to 3.54, the lowest mark for this indicator since July.

Overall the Index of Business Conditions show a sharp decrease, going from 4.09 on November 1 to

3.04 on December 1. As a result the three-month moving average fell, from 4.08 to 3.70, back to a level

close to the October 1st mark. This is the first drop in the three month average in the last 11 months.

Our data show a pronounced setback for sentiment about the forward looking outlook for business conditions. Aggregated responses suggest that the rate of recovery will be slower in the coming two months than in the

recent past. Only 23% of our participants expect company headcount to increase over the next 60 days. While this is the highest level in the last year, it is offset by an increase of comparable size in the percentage of

respondents who expect employment to decline in the next 60 days.

It appears that the perceived momentum for recovery may be slowing. The recovery may be getting tired. Based on the overall trend, it is reasonable to expect the economy to continue to improve only slowly until hiring

accelerates and banks get more willing to lend. A slow but steady increase in home prices continues to be a mild positive.

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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 who are reporting a

worsening in business conditions for the past 30 days and the next 60 days.

As of December 1st, the Tatum Index of Business Conditions fell significantly, from

4.09 on November 1st to 3.04. After 11 consecutive months of gains, the three-

month moving average decreased from 4.08 to 3.70.

The decrease for the month was due to a sharp decrease in the 60-day

outlook ratio, more than offsetting a mild improvement in the ratio

regarding the past 30 days. The three-month moving average

decreased for the first time since January of 2009.

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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

2.9

4.2 4.0 4.1

3.0

0

4

8

12

16

12/0

6

01/0

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12/0

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01/0

8

02/0

8

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06/0

8

07/0

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08/0

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09/0

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10/0

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11/0

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12/0

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01/0

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02/0

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06/0

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07/0

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08/0

9

09/0

9

10/0

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11/0

9

12/0

9

Index 3 Mo. Avg.

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Business Conditions - Trends

In the past 30 days, business conditions:

Improved for 30% of our respondents, unchanged from last month

Worsened for 12%, down from 13% last month

Stayed about the same for 59%, compared to 57% for last month

Changes are minimal versus the previous month and consistent with the last few months. While the portion of respondents who say that their business

has improved over the last 30 days is considerably higher than in the summer (30% now versus 22% in July), this trend has flattened out. The rate

of improvement in business conditions appears to have leveled at a fairly low plateau, at least for now.

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Business Conditions the Past 30 Days

13

%

10

%

12

% 16

% 22

%

25

%

26

%

22

%

23

% 28

%

31

%

30

%

30

%

39

%

45

% 45

% 44

%

51

%

56

%

55

%

61

%

60

% 57

% 55

%

57

%

59

%

48

%

45

%

42

%

40

%

27

% 19

%

19

%

17

%

16

%

14

%

13

%

13

%

12

%

0%

20%

40%

60%

80%

100%

12

/1/2

00

8

1/1

/20

09

2/1

/20

09

3/1

/20

09

4/1

/20

09

5/1

/20

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6/1

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7/1

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8/1

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9/1

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10

/1/2

00

9

11

/1/2

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9

12

/1/2

00

9

Improved Stayed the same Worsened

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The ratio of “Improved-to-Worsened” in the last 30 days rose

from 2.30 to 2.54 – a slight increase, following a slight decrease in

November. December’s gain resumed an upward trend that began

as of August 1.

It is useful to remember that the level at which sentiment appears to have flattened out

remains well above the 0.26 mark where it was in December 2008. The last year has seen a

steady and substantial improvement.

There are two components in the analysis of these data. One component is the absolute

number and the trend of that number. The other is the first derivative of the trend,

meaning the rate of acceleration or deceleration.

Our data show that the combination of these two components peaked in October 2007

(two months before the Recession officially began) and reached bottom in December

2008, at least four months before there was corroborative evidence of the beginnings of a

recovery. The anticipatory nature of our survey trends reflect the more subtle rate of

change as well as the overall trend.

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Ratio of “Improved” to “Worsened” – Past 30 Days

0

1

2

3

4

5

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Total

Ratio

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In the next 60 days, business conditions are expected:

To improve for 38% of our respondents, a decrease from 43% reported last

month

To get worse for 11%, an increase from 7% last month

To remain about the same for 51%, a slight increase from 50% last month

The outlook for improvement is down considerably. The 38% expecting

business improvement in the next 60 days is the lowest since July of this

year. Additionally, the 11% expecting business to get worse is the highest

since July. Clearly the growing optimism seen earlier in the fall has waned

somewhat. It remains to be seen whether this is simply a pause in the

recovery or a real faltering in the comeback from the low levels of sentiment

at the end of last year.

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Business Conditions - TrendsNext 60 Days

21

% 26

%

27

%

29

% 35

%

39

%

42

%

36

%

39

%

50

%

47

%

43

%

38

%

40

%

43

%

43

% 47

%

50

% 50

% 49

%

52

% 52

%

42

%

45

%

50

%

51

%

39

% 31

%

30

% 24

% 14

%

11

% 9%

12

% 9% 8%

8% 7%

11

%

0%

20%

40%

60%

80%

100%1

2/1

/20

08

1/1

/20

09

2/1

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09

3/1

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09

4/1

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5/1

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6/1

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7/1

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8/1

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9/1

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10

/1/2

00

9

11

/1/2

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9

12

/1/2

00

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Improve Stay the same Worsen

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In the next 60 days:

The ratio of “Will Improve” to “Will Worsen” decreased significantly from

the previous month, dropping from 5.88 to 3.54.

This is a very sensitive measurement that (as in this case) can shift

dramatically. Therefore the 3-month moving average index of business

conditions makes it easier to see the overall trend.

The 3-month moving average dropped – from 4.08 in October to

3.70 in December. The sharp drop in forward-looking sentiment

dragged down the moving average, out-weighing the incremental

improvements seen in the several previous months.

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Ratio of “Will Improve” to “Will Worsen” – Next 60 Days

0

2

4

6

8

10

12

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Total

Ratio

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Business Conditions – Current Results

Order BacklogsIn the past 30 days:

The percentage of respondents who reported an improvement in backlogs increased from 27% to 30%. The percentage reporting lower backlogs also increased, moving from 15% to 17%.

In the next 60 days:The percentage of respondents who indicated expectations of higher backlogs decreased from 41% to 36%. The “Will Worsen” percentage increased from 8% to 11%.

The results indicate that conditions and expectations for business activity over the next 60 days have dipped. Slightly more respondents (53%) say

that backlog will stay the same than was true for November (51%).

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Order Backlog Analysis

Past 30 Days

Next 60 Days

0%

20%

40%

60%

80%

100%

12/1/2008

1/1/2009

2/1/2009

3/1/2009

4/1/2009

5/1/2009

6/1/2009

7/1/2009

8/1/2009

9/1/2009

10/1/2009

11/1/2009

12/1/2009


0%

20%

40%

60%

80%

100%

12/1/2008

1/1/2009

2/1/2009

3/1/2009

4/1/2009

5/1/2009

6/1/2009

7/1/2009

8/1/2009

9/1/2009

10/1/2009

11/1/2009

12/1/2009

Will Improve Will Stay the same Will Worsen

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Capital Expenditure Commitments

In the past 30 days:The percentage of respondents committing more on capital equipment increased from 17% to 20%. The percentage that committed less on capital also increased, from 23% to 26%.

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 from 27% to 24%. The percentage who expect to commit less increased slightly, from 19% to 20%.

The data trend on capital expenditure commitments is mildly negative. While there are signs of improvement in spending in areas such as

information technology, this trend may be indicative mostly of larger firms. The kind of robust capital spending that would power a strong economic

recovery is not yet visible.

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Business Conditions – Trends

Capital Expenditure

Commitments Analysis

Past 30 Days

Next 60 Days

0%

20%

40%

60%

80%

100%

12/1

/2008

1/1

/2009

2/1

/2009

3/1

/2009

4/1

/2009

5/1

/2009

6/1

/2009

7/1

/2009

8/1

/2009

9/1

/2009

10/1

/2009

11/1

/2009

12/1

/2009

Increased Stayed the same Decreased

0%

20%

40%

60%

80%

100%

12/1/2008

1/1/2009

2/1/2009

3/1/2009

4/1/2009

5/1/2009

6/1/2009

7/1/2009

8/1/2009

9/1/2009

10/1/2009

11/1/2009

12/1/2009

Will Increase Will Stay the Same Will Decrease

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Employment

In the past 30 days:The percentage of respondents hiring more workers stayed the same as in November at 15%. The percentage that indicated they did less hiring increased from 14% to 17%. The net of these reflects a slightly less encouraging report than in the previous month.

In the next 60 days:The percentage indicating they plan to increase hiring grew from 20% to 23%. The percentage who expect to reduce hiring also increased, from 10% to 13% reversing a comparably sized decrease in November in those expecting headcount to drop.

The outlook for employment is mixed, suggesting that a significant change in the employment situation is still not in sight. This is

consistent with the national unemployment figures which appear to have hit a plateau at a rate slightly over 10%.

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Employment Analysis

Past 30 Days

Next 60 Days

0%

20%

40%

60%

80%

100%

12/1/2008

1/1/2009

2/1/2009

3/1/2009

4/1/2009

5/1/2009

6/1/2009

7/1/2009

8/1/2009

9/1/2009

10/1/2009

11/1/2009

12/1/2009

Increased Stayed the same Declined

0%

20%

40%

60%

80%

100%

12/1/2008

1/1/2009

2/1/2009

3/1/2009

4/1/2009

5/1/2009

6/1/2009

7/1/2009

8/1/2009

9/1/2009

10/1/2009

11/1/2009

12/1/2009

Will Increase Will stay the Same Will Decline

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Capital Availability and PricingThe past 30 days:

The percentage of respondents indicating an improvement in financing conditions dropped from 25% to 22%. The percentage who indicated conditions worsened increased slightly from 7% to 8%.

In the next 60 days:The percentage of the respondents who expect improvement in financing conditions in the next 60 days decreased significantly from 34% to 25% The percentage saying conditions will get worse decreased from 7% to 6%.

The data are consistent with the picture conveyed by research companies and in the press. Lending remains tight for all but the most credit-worthy borrowers. Most small banks have

significant exposure to commercial real estate, an area that remains a concern.

The outlook trend is more cautious than the recent past. Capital availability is one of the keys to a sustainable recovery, and the need for capital will increase as the recovery gains

momentum. Therefore, we are watching this indicator with particular attention.

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Capital Availability /

Pricing Analysis

Past 30 Days

Next 60 Days

0%

20%

40%

60%

80%

100%

12/1/2008

1/1/2009

2/1/2009

3/1/2009

4/1/2009

5/1/2009

6/1/2009

7/1/2009

8/1/2009

9/1/2009

10/1/2009

11/1/2009

12/1/2009


0%

20%

40%

60%

80%

100%

12/1/2008

1/1/2009

2/1/2009

3/1/2009

4/1/2009

5/1/2009

6/1/2009

7/1/2009

8/1/2009

9/1/2009

10/1/2009

11/1/2009

12/1/2009

Will Improve Will Stay the same Will Worsen

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Survey Participation Demographics – Industry

Manufacturing/Processing 26%

Service 20%

Healthcare 15%

Technology 11%

Government 6%

Retail 4%

Financial 3%

Real Estate 3%

Wholesale 3%

Bio-Tech/Life Sciences 2%

Other 7%

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Survey Participation Demographics - Markets/Regions

Primary Geographic Markets

Local 12%

Regional 24%

National 41%

International 23%

Geographic Regions Represented (Total of 221 Responses)

Northeast 12%

Southeast 29%

Midwest 13%

Southwest 18%

Pacific 28%

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Survey Participation Demographic Summary

The following are on relative scales from our respondents:

Regions: Industries:*

Strongest – Northeast Strongest – Technology, Service, Financial

Weakest – Midwest Weakest – Manufacturing, Wholesale

Markets Served: Company Size:

Strongest – International & Local Strongest – Pre-revenue & Large

Weakest – Regional & National Weakest – Small, Mid-Market

* With statistically significant participation

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Compiled and Analyzed by

Sam Norwood – Senior Partner

Mark Rosenman – Director of Knowledge Management

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.

Dec 2009 Tatum Survey

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