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Commentary & Analysis

Economic Roundup, Money in Despair, E-Paper: For Real!, Small is Beautiful, and Dear Dr. Joe

October 30,

By Dr. Joe Webb
Published: October 30, 2006

October 30, 2006 - Economic Roundup - Money in Despair...and Printing! - E-Paper On Its Way, for Real - Small Is Beautiful - Dear Dr. Joe Economic Roundup In its latest meeting, the Fed kept interest rates as they are, which was not a surprise. One does get the sense that they are getting antsy that the economy is not slowing down enough, because the housing data are holding up better than expected (they just increased) and corporate profits are still good. What they can be relieved about is that energy prices have headed downward and appear to have stabilized. I'm still in the camp that says they will have to loosen near the end of the second half of 2007. The durable goods new orders report for September was far stronger than expected. They were up $16.3 billion or +7.8% after two months of small decreases. This data series jumps around a lot, and month-to-month changes can't always be relied upon as predictors. For the year, they're up over 8%. Various manufacturing businesses have been doing well over the year, and may actually be doing better based on the above durable goods report. The list below shows how the performance of various manufacturing industries compare with the rise in current dollar GDP and also inflation. Petroleum and coal products +18.3% Primary metals +16.2% Machinery +11.7% Electrical equipment, appliances, and components +10.5% Nonmetallic mineral products +9.6% * 2006 CURRENT DOLLAR GDP +8.8% Computers and electronic products +8.7% Fabricated metal products +8.4% Apparel +7.8% Durable goods industries +7.6% All manufacturing industries +6.9% Furniture and related products +6.7% Plastics and rubber products +6.4% Nondurable goods industries +6.1% Chemical products +5.8% Miscellaneous durable goods +5.7% Beverage and tobacco products +4.7% Paper products +3.7% * CONSUMER PRICE INDEX (last 12 months) +3.5% Transportation equipment +3.4% Textile products +2.6% Food products +0.4% Printing +0.1% Leather and allied products -0.4% Wood products -1.5% Textile mills -9.1% Inflation distorts so many things, including stock market benchmarks. Thomas Donlan, an editor at Barron's, recently reminded readers that the real targets for the Dow, S&P 500, and NASDAQ are 13,900, 1807, and 6075, respectively. As of close of the market on Wednesday, October 25, they were 12,106, 1380, and 2351. That means that they must rise 15%, 31%, and 158% to match their true inflation-adusted highs. This doesn't mean that stocks are a bad investment, as anyone who has been purchasing after the crash has likely done quite well. What it does mean is that rigidly adhering to various numerical targets, even to oil price targets, as we have mentioned here often, ignores other important dynamics that lead to better understanding of what is going on. As I have said now and then, some people would be a lot better off if they had a better understanding of the present than constantly worrying about the future. It's funny how the Exxon profits data were targeted by the media again, when their 11% profit on sales still puts them in the bottom half of the Dow Jones Industrials. There was relatively little reporting about Shell's awful performance, where profits dropped 34% to 7% of sales. Still, major software companies like Adobe and Microsoft are in the 25-30% range for their bottom lines, and Apple has finally worked its way up to Exxon-like returns after many years. Where is the outcry about price-gouging from these companies? Adobe and Apple killed our thriving prepress industry, so we should be really angry about that, shouldn't we? There is no outcry and there shouldn't be, and neither should there be for Exxon which has a long history of being a laggard in earnings and a long-term lackluster investment. Despair.com Decides There's Money in Disillusionment... and Printing! Attendees at our Graph Expo event, sponsored by MAN Roland, had a chance to win some despair.com Post-It pads, and I had the privilege of presenting MAN Roland North America's outgoing CEO Yves Rogivue with an official despair.com “pessimist's mug.” What's more interesting is that this small publishing company recently announced that it is producing personalized calendars of its famous posters. A note to Despair.com customers said, “With only one HP Indigo 5000 printer under roof, a maximum output of only a couple thousand calendars per day, and no back-up plan in the event of equipment failure, Despair is playing a dangerous game of chicken with Fate this year. Sure, it would've been a lot more pragmatic to secure a second printer— just to have a little bit of extra capacity, to say nothing of redundancy. But at half-a-million a pop, that would've cut into profits, and in turn, might have forced certain higher-ups here to indulge their annual Relentless Pursuit of Perfection at Southpoint Kia instead of Lexus of Austin.” Despair.com is a wonderful success story, and is a favorite of all of us optimists in the world. Their tongue-in-cheek products show that pessimism is really dysfunctional and a sheer waste of time. As the saying goes, if you don't mold and craft the future you want, you'll be stuck with the future you get. The despair.com folks are doing everything but despairing. And now they've got an in-plant printing department, too, with the latest digital technology. Back to top E-Paper On Its Way, for Real Sony is now selling its Portable Reader. Word comes from a Chinese news report that monthly shipments of e-paper screens are now at 10,000, with Sony buying the majority of them. Sales must be very strong, because the Sony e-store now has a message that says, “due to overwhelming demand, new Sony Portable Reader orders may ship as late as November 30th. Existing orders will be shipped in the order they were received.” It's common for new electronic products to have rushes of opening orders. The more important indicator is whether any orders follow those up. Print As a Spin-Off From the Web—Maybe Not So Far Off the Mark Bureau of Labor Statistics data I presented at Graph Expo demonstrated that content creation is on the upswing, as employment in publishing, agencies, public relations, and designers, show growth over last year, except for newspapers. Aside from these data foreshadowing the increase in commercial print that we have recently experienced, it shows that content creation skills are very much in demand. Now, a report in the Wall Street Journal reports that some new media position salaries are being bid up by 50% compared to last year. This price of labor is both a sign that demand is up, but that there is also a significant shortage of workers. One of the comments in the article is that the lack of these workers is actually holding back the rate of the shift to new media. I had not really considered that factor as all that important before, but as I have checked this out, I now believe this may be one of the reasons for print's recent rise. Corporations have some very demanding communications tasks, want to include more electronic media, but can't do so in the time frames and cost parameters that they want, so the dollars are deployed to traditional media instead. Now that's a strange scenario, indeed, where new media cost too much, and print wins the day. Enjoy it while it lasts, though. Maybe print really is a spin-off from the web! One of the things these high wages do is to attract workers from other disciplines. Our industry was raided in the Internet bubble, and it can be again. Back to top Small is Beautiful I was having a conversation with someone recently, and in passing they mentioned that they had a client who wasn't interested in pursuing a particular prospect because they were “too small.” I immediately thought of YouTube, the 67-employee, 19-month old company that Google bought for $1.65 billion... (yes, billion... a thousand millions) in Google stock. Other things come to mind. Peter Drucker's famous "feed tomorrow, starve yesterday" is very important in sales. Sales people, however, live in a what-have-you-done-for-me-lately world that penalizes sticking with long sales cycles and nurturing of small businesses. If a sales cycle is 24 months and you constantly beat up on sales people for how they did in a particular quarter, then they'll only shoot for the easiest, lowest hanging fruit. Reaching prospects of the future is why we advertise. This is why we create brands. But many sales executives demand immediate returns for almost every action, so their companies have stopped advertising and corporate image development work. Instead, they focus only on "events" or sales situations where there are only today's “qualified buyers.” They're ruining their businesses of tomorrow in the process, and will always be selling and trying to sell harder and harder. Peter Drucker's famous quote about “the purpose of marketing is to make selling unnecessary” is clearly not taken to heart by these people. We're still creating 78,000+ net new businesses per month. VistaPrint and Staples, two believers in the value of print as a business, are riding this wave. That small business, or that worker in that small plant, is forming opinions about the capabilities of suppliers they will use in the future in their next business or their next job. And they'll remember the day when no one paid attention to them because they were “not qualified.” Back to top Dear Dr. Joe Q. Where can I get information about the underlying assumptions behind the economic laws of supply and demand? You seem to write about them often enough. A. There are some Internet resources about supply and demand at Wikipedia and at Investopedia. But if you'd really like to understand them in their fullest, across many economic activities, I strongly recommend "Basic Economics" by Thomas Sowell, which is the best economics book for those who are interested in learning about economics without studying it from an academic perspective.

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink.com's Economics and Research Center.

What do you think? Please send feedback to Dr. Joe by emailing him at drjoe@whattheythink.com.

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