>Tatum/Roulston Report

September 9, 2009

>The Tatum survey this month clearly reflects the inventory reduction cycle is over and business trends have bottomed. We seem to all know that it has stopped getting worse in the economy. Time has passed and access to capital is available if the balance sheet is there to support it. So now backlogs are improving (seemingly so far to rebuild inventories that had been drastically reduced) and companies thru employment cuts and capital spending reductions have pared costs to the bone. Most executives remember recent downturns and when this one started it seemed worse. Corporate America really downsized in a hurry. With the financial panic that ensued alternatives for capital were perceived to be scarce and budgets were set with as little reliance on outside support as possible. Finally capital spending plans were also ratcheted down dramatically. All of this makes sense. The difference this time is just the quickness and velocity with which this occurred.

Although all signs point to this adjustment period now being over and the downward movement being halted, the fact remains that growth at this point is simply hard to recognize in any numbers to date other than the bounce off the bottom. We have talked many times how the Tatum Survey remains the best real indicator of corporate trends in America. The data base is consistent month to month and the people responding are the same. The data report therefore does not just reflect a mood change but more decision makers and the real data they are seeing day to day. The key is now how does the market, corporate profits and economic growth move forward from here. Government stimulus has had some short term boosting effect but “flat is the new up”. At Roulston, we remain unconvinced that any growth other than a flat environment where cost cutting boosts profits is happening. The most unique aspect of this is how universal this trend is and how many companies seem to be pausing to reconsider what lies ahead. The worst definitively seems to be over not only for their company but everyone they talk to and do business with in their world.

There is a certain calmness in the absence of consumer spending, the bounce in housing numbers and the employment picture that seems so tempting. The question we continue to mull is without a consumer (now saving and not spending) that makes up 70% of the economy and without a healthy financial system (the government tells us 200 banks will fail in the next 12 months) how do we get meaningful growth? Baby boomers inherently know they dont have enough saved for retirement. The numbers tell us this. The savings rate tells us this and the fact that the market scared the … out of folks. This change has never happened before. It may not be a depression under some terms but it was very depressing. Other than for the economists that continue to point to past cycles where neither of these issues are comparable and we would argue there may be no past precedent, this is a hard time to be doing any forecasting.

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