Commentary & Analysis
Economic Roundup and Important Articles
Fridays with Dr.
By Dr. Joe Webb
Published: December 3, 2004
Fridays with Dr. Joe: December 3, 2004 - Economic Roundup - Important Articles Economic Roundup Next week’s webinar has been postponed until sometime in January. As soon as we have a new date, we’ll turn on WhatTheyThink.com’s legendary news machine and let you know. One thing's for sure. Experts will be w rong. Sometimes the one that’s right is like the drunkard playing darts in a bar. Someone bumps into him in mid-toss, and he gets a bulls eye. This will, of course, be attributed to skill, experience and knowledge. With that in mind, I am pleased to offer my forecast for next year. In the last column, just before Thanksgiving, I provided some of my rough forecast estimates and I’m pleased to present my final forecast here. - - - Ask Dr. Joe a Question Dr. Joe's Bio Yes, Dr. Joe Has a Store Dr. Joe's web site The general economy is a lot better than most news reports let on. Government data collectors still have trouble detecting the small business aspects of this economy. GDP for the third quarter was revised up, from 3.7% to 3.9%. Lest anyone lose track, that means they found $23 billion dollars they weren’t expecting. That’s the equivalent of three months of printing industry output! It’s likely that these Q3 data will be revised up yet again, continuing a pattern of undercounting the economy. Economist Larry Kudlow’s blog expanded this idea further: “Inflation came in at 1.3%... Business equipment and software grew by 17.2%... Consumers spent at a 5.1% pace… Exports rose by 6.3% at an annual rate while imports increased 6.0%.” The Institute for Supply Management’s manufacturing index reversed a slight decline in November, and the report was very bullish, especially for employment. This index has been showing growth in the manufacturing sector now for 18 straight months. For 2004, we’re at 3.9% GDP for the first three quarters. We will probably finish the year at 4% once the Q4 data are history and Q3 gets revised again. Dr. Joe’s 2005 GDP Forecast: will range between 3.75 to 4.75% during the year, and possibly finishing at 4.4%. Interest rates Uncle Alan will keep raising rates as he tries to keep the inflation genie in the bottle. He is not about to stop the economic growth and is basically following the direction of market interest rates anyway. Expect 25 basis point increases every time they meet for the next year. The strategy could change, however, and he may decide at mid-year to give it a 50 basis point increase and then leave things alone. Other than some 9/11-like tragedy, there is only one thing that will change interest rate policy, and that’s if CEOs become very enthusiastic about their outlook, in which case he will clamp down hard. That’s not likely to happen. Since most big company CEOs rely on international business, they’re not seeing much growth unless they’re active in China. Even that will slow down sometime this year. European central bankers are considering raising rates, exactly the opposite of what Euroland needs, and the lack of demand there will stress the U.S. economy unless that outlook changes. With the exchange rate balance the way it is, most U.S. goods are now cheaper worldwide. It’s not likely that there will be any effort to make the dollar st ronger. Part of the soft dollar strategy in my mind is to protect the U.S. against China’s competition. In the meantime, Europe is bearing the brunt of its own lack of inaction. If the Euro is st rong, it really means that there are not enough Euros. If their interest rates are allowed to drop, my GDP forecast may actually be too low. Keep an eye on this, because if they go through with the rumored tightening, the U.S. and China may be the only big economic shows worth buying tickets for in 2005. On the Web: GDP Kudlow’s blog ISM manufacturing Two Wall Street Journal articles sum up the issues with the weak dollar (subscription may be required) First Second Unemployment Unemployment is the pessimist’s word for it; they never call it “the employment rate.” You can get a good sense that the media views it this way. If weekly jobless claims hit a four year high, it will be f ront page news, with interviews of workers in line for assistance checks. When they hit a four year low, you find the report buried near the obituary section of the newspaper. It will still be a st rong year for small business and entrepreneurs, even the unintentional ones. By that I mean that CEOs may start cutting back again. CEOs will definitely not be hiring, so that means outsourcing to 1099 workers and not replacing W-2 workers (which is what the Department of Labor uses in its payroll survey). Small and mid-size businesses will be hiring, and that’s under the radar of most short-term economic detection. Unemployment, currently at 5.5%, will probably not drop to anything less than 5.2% next year. But the net new business train will keep going, and will create somewhere in the range of 750,000 new businesses, which are, of course, not tracked by the payroll survey. That survey will continue to show a sluggish economy, giving a false signal that only pessimists will embrace. Dr. Joe’s unemployment forecast: 5.2% by Q3 2005 Speaking of pessimists, the Conference Board’s consumer confidence index went down. This is where you have to read the fine print. The survey was based on data collection that was stopped on November 16. Since then, we have st rong consumer data from the third quarter, which was a time when their index was also declining. Like moms around the world chide their kids, “watch what people do, not what they say.” Just in those last few weeks, retail sales are going along quite well, gas prices are declining, and most of all, those election ads are nowhere to be seen. More importantly, employment data are still improving. Consumers are not saving, and that’s a good thing. They are confident enough to spend and confident enough in their ability to pay debts, which is probably the best measure of confidence we have. On the Web: Conference Board Pesonal income Printing Shipments Printing shipments for October were up $479 million compared to October of 2003. That’s a hefty 6% increase compared to last year. For the year, print is now only -0.1% lower than last year. That’s not adjusted for inflation. The industry could come in even with last year in current dollars. We won’t know until February how the industry did for 2004, but it’s clear that the corner is officially turned, and we’re not driving the w rong way on a one-way street. Don’t get too comfortable, though; there are many intersections ahead, and getting even with a bad 2003 is not prosperity. But yet again, profits data should be very good for the third and fourth quarters. We still have a long way to go to be exuberant about financial prospects once more. But this kind of increase in shipments is good news indeed, and one should pause and enjoy it. On the Web In terms of 2005, the first two quarters should be much better than 2004 (which was a dire time), and the last half should be about even with this year. The worst is behind us, and from an economic standpoint, so are the easy comparisons with prior bad years.. What we make out of a flat business is up to us. Dr. Joe’s printing business forecast: up 1.25% in real terms for the year, at best, which will mean about a 3% increase including inflation. Let’s hope I’m w rong and that it’s higher than that. But it will be the first full-year increase in volume in more than four years. Remember: the first five months of 2005 will look just spectacular compared to the same months in 2004, but comparative annual growth rates will flatten out starting in Q3. Back to top -------------------------------------------------------------------------------- Important Articles These came across my virtual desk and I thought they were essential to pass along as you consider what is ahead for our industry for 2005 and beyond. Story: Newspapers Padded Sales Figures to Keep Ad Rates High (Sure, so that they could make their bonuses and erode calculated ROI figures; this way the people who replaced them would have something to do. Media buyers are questioning print’s ROI, and the result of these manipulations resulted in increasing the calculation’s denominator, making the ROI look worse but the circulation numbers look better. Any wonder why media planners are enamored with claims of e-campaign measurability? We brought it on ourselves.) On the Web Story: Critical Issues Roundtable: The Big Picture (catalog honchos talk about their business) On the Web Story: Survey Finds Advertising Important, But Flawed (executives don’t trust what they spend on advertising to produce what they need) On the Web Commentary: Newspapers Should Really Worry (younger readers and their perceptions of print) On the Web Story: Web aids moms in building careers (if you want to see what production and print procurement will be like in the future, you have to read this) On the Web Interview: Marketing at the Crossroads (a media mix discussion with a big ad agency) On the Web Back to top