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'Uh-Oh': A CFO survey turns ominous

Roy Harris | Oct. 12, 2011
One monthly measurement of the nation's business pulse, taken mainly among CFOs of mid-sized companies, shows a major weakening in September. And the finance-heavy executive group also has lower expectations for October and November.

One monthly measurement of the nation's business pulse, taken mainly among CFOs of mid-sized companies, shows a major weakening in September. And the finance-heavy executive group also has lower expectations for October and November.

The area of capital availability, one of four broken out in the survey by Tatum, registered the biggest reversal in experience and expectations among CFOs. The proportion of respondents saying that capital availability worsened in September increased to 23% from 16% in August, while those experiencing improved capital conditions declined to 11% from 14%. As for expectations for the next two months, 24% foresaw a worsening, compared with 14% in the prior survey, while 19% expected an improvement in the next two months, up from 18%.

A press release for the monthly survey by Tatum, an organization that provides corporate-finance and other services, was headlined, "Uh-Oh: All Signs Point to Recession Once Again." Tatum said it had 119 email responses, mostly from Tatum's CFO partners. Other respondents are corporate principals, managing partners or CIO partners with the Tatum organization. [See attachments at the end of this story.]

Two-Year Low for Index Number

Overall business conditions were seen to have worsened in September by 21% of respondents, compared with 17% in the prior month, while the number noting an improvement stayed the same at 24%. But 17% expected conditions to deteriorate in the next two months, up from 8% in August, while 37% saw an improvement ahead, up from 35%.

The business-conditions index used by Tatum plunged to a two-year low of 1.7, after being within a range between 2.7 and 10.7 each month of the past 12. An index number in the 3.0-to-4.0 range indicates near-zero economic growth, while scores below 3.0 suggest recessionary conditions, as was the case with below-3.0 scores in 2008 and 2009.

"In the prior month's survey, we saw cautious optimism after the resolution of the debt ceiling political crisis," says Frank Schools, a Tatum partner based in Irvine, Calif., "but now the mood has definitely soured as our respondents continue to experience negative trends in recent results."

Jump in Those Expecting Lower Backlogs

Besides capital availability, the survey breaks down experience and expectations about order backlogs, employment, and capital spending. In those areas, however, responses seem less definitive.

There were marginal increases in the number of executives whose company backlogs increased in September (25%) and those who said they had shrunk (20%.) But in terms of 60-day expectations, 21% saw future backlogs worsening, compared to 7% in the August survey. Still, 31% expected backlog improvement, although that was down from the prior month's 38%.

The number of executives who had done less hiring in the past month rose to 16% from 10%. But signals were mixed for the future, with 27% saying they expect to increase hiring, up from 20% in August, while the number expect hiring to worsen climbed to 18% from 12%.

 

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