Tatum/Roulston Report

June 11, 2012

As we also saw in May, the Tatum survey once again in June is reflecting the sloppiness of the economy. In February and March of this year we saw a two month positive aberration. In October/November last fall we saw a two month negative aberration. Removing those two periods we are seeing a period of malaise that has been in place now for over a year since the downturn in February of 2011.

So for 15 months most of the indicators from backlogs to inventories, productivity and employment trends have all stayed fairly consistent with little measurable improvement or for that reason decline. The one area of gradual improvement has been capital availability or bank loan aggressiveness. But even here it has not been an aggressive loan policy just some liquidity improvement.

The Tatum Survey to us has always been a great leading indicator. We believe this to be unlike other surveys because Tatum keeps polling the same audience. This does tend to allow for short term false short term echoes (or aberrations) like last fall and this spring. We have mentioned before that like consumer confidence surveys, sometimes good news can just make respondents “feel better” responding month to month.  This can result in a one or two month hiccup from trend. We then revert back to norm, which again can show real change in many cases before many other government indicators and other surveys. The real news this month is that the trends are very clear. From our own experiences and qualitative discussions we gather feedback to add to the survey.

We have been saying for quite some time that forecasting is increasingly difficult. Confidence and optimism drops when forecasts are unclear. The increasingly internationalized world and technology are two factors impacting the challenges of forecasting. The global market place and supply chain is growing quickly and technology is rapidly altering data and perspective as well as delivery. But the biggest impact in industry from so many companies perspective is the uncertainty of regulation and more broadly government activism from taxes to health care to environmental policies. As we talk to companies in many industries, when the issues of regulatory policy is raised we hear of changing and unpredictable distractions. Just as an example are the responses to Obamacare taking time and resources away from productive initiatives. Other companies discuss moving operations due to state tax increases. A recent major acquisition by a midwestern company of a smaller competitor resulted in a domicile change of the combined company to Ireland. This is simply responding to government tax policy.

When companies exhaust resources and people to respond to regulatory issues it is simply more challenging to focus on growth and productivity. As long as government remains in regulatory mode, the economy is destined to need a lot more stimulus than past recoveries. Stimulus that the government alone can’t offer. In 1983 when the last deregulatory and lower tax policy kicked into gear, the Dow Jones average was approximately 1050. By 1999 the Dow had reached over 9300. At that point new stimulative housing and other regulatory changes started to create in retrospect a more “bubble exhuberance” to the upside. So government policy can create bubbles also (did someone say Federal Reserve).

Hopefully an election might bring politicians to look back at history and learn from past precedents. 

To read the whole article please visit  June_2012_Tatum_Survey

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