WSJ Headline Economic Gauge - An Update

We last updated our WSJ Headline Economic Gauge on May 26. A lot of people have been asking for another update as there seem to be mixed messages whether the economy is yet improving. Public equities are certainly improving – whether that improvement is sustainable is debatable.  Pronouncements from many of our political leaders would lead us to believe that the economy is improving but usually with the caveat that it will be a slow, bumpy recovery. Worried about whether or not he will stay employed, the consumer is more focused on saving or paying down debt than spending and many middle-market companies are finding that obtaining financing is a challenge and they are still struggling to see much growth in revenues.

So, what does our WSJ Headline Economic Gauge tell us?  For this update, we have tallied the Friday WSJ Edition Headlines and reported them by monthly totals – 7 months from March (partial month) through September. While the positive headlines are increasing, the negatives still outnumber the positives with only 4 of the 26 weeks we have tracked showing more positive headlines than negative and with the best monthly results a tie at 42%/42% for August (only 2 weeks in August were totaled as I was on vacation and happily away from all this…).

Month-----------Positive-------Neutral--------Negative-----Total Headlines
March-----------18/26% ---------6/9% --------45/65% -----------69
April------------40/32% --------13/10% --------71/51% ----------124
May ------------50/23% --------37/17% ------131/60% ----------218
June ------------50/40% -------15/12% --------61/48% ----------126
July -------------76/35% -------26/12% -------113/53% ----------215
Aug -------------31/42% --------11/15% --------31/42% ------------73
Sept-------------49/38%----------9/7%---------72/55%-----------130

There are signs of improvement but there are still not just bumps in the road but many hurdles middle-market company owners will have to jump over or run through in order to survive the more difficult times I believe are still ahead. In these continuing challenging times, managing companies the way they have been managed in the past is no longer going to work. It is a different business world – business and real estate valuations are lower, business owners seeking capital for liquidity and/or to support their growth and working capital needs are finding a dearth of alternatives, and neither consumers nor businesses are spending. Further, as the economy begins to improve, under-capitalized businesses will likely have to forgo the unique growth opportunities an economic recovery often presents. While I do believe that the adjustments going on - working through the excesses developed over the past 15 years - will produce an economy that will be more rational and sustainable, getting from here to there will be tough and will simply take time.

There are a number of resources available to help business owners take a fresh look at how their companies are run: good quality management consultants can provide new ideas to deal with the issues business owners are facing today; boards of directors or advisors including members outside the business can add an impartial perspective to the business operations, and can help strengthen corporate governance and financial reporting; private equity and subordinated debt funds can provide capital to help companies sustain themselves and even grow; and investment banking firms can help determine the best capital source and structure to accomplish the business owners’ objectives and lead them through a capital raising process.