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Q1 2010 Webinar Post Event Q&A

Q.

By Dr. Joe Webb
Published: April 7, 2010

Q. Can you please comment on the CPI (Consumer Price Index) versus the PPI (Producer Price Index). More than 25% (40%?) of CPI is housing, which we know is in the dumps. So that's one reason CPI is low, while PPI isn't. Also, businesses still don't have pricing power (except, unfortunately for printers, paper companies seem to). And, then, of course, there's the conspiracy theory that holds that BLS has consistently underestimated inflation, even 7-10 years ago.

A. What is it? 25%? 40%? The answer is: yes! The weights used in the CPI change slightly every year, and the latest document describing that is online. Forty percent of the CPI is housing related, but it's a really broad category that includes the goods needed to take care of a house, such as energy costs in heating the home. Twenty-five percent of the CPI (included in that forty percent) is called “owners equivalent rent of residences” which is for the costs of owner-occupied housing. There is a document online that describes some of the rationale.

As far as the conspiracy theory that the government is purposely not telling how bad it is, there are many of such theories. My experience with the Bureau of Labor Statistics is that they can be bullied in press conferences but they're never bullied in footnotes or starting in the fourth paragraph of their press releases. All of their work is there to see, and any statisticians who question their work can find what they need.

Many of the conspiracy theories just seem that way, but are honest differences of opinion about methodology and the changes to methodologies made over the years. Aside from the debates about housing, which are constant, there is another about technology. The BLS has been making adjustments for the increasing capabilities of computer technology and their declining prices. Essentially, assuming there was no inflation, a $500 computer in 2005 is vastly different than a $500 computer in 2010. They have been making price adjustments for these and all kinds of products in the decade.

The strangest part of the conspiracy theory is that somehow an unemployment rate of 9.7% hides that the economy is bad, or that a 2% inflation rate doesn't rob value of savings. If the government is trying to hide unemployment or the effects of inflation, they're doing a terrible job of it.

Q. Is it true that a number of public companies will be taking a charge to earnings because of the new Health Care reform law? I had heard that a number of CEOs had advised the current administration that Sarbanes Oxley would require them to do that.

A. Yes, this whole thing was quite laughable. It wasn't just Sarbanes-Oxley, it's all kinds of Securities & Exchange Commission Regulations, too. Public companies that were taking advantage of a tax credit for payment of certain medical expenses for retirees lost that credit in the recently passed law. Note that it was a tax credit, and that it encouraged companies to offer this as a retirement benefit. Even though the credit won't disappear immediately, by law the companies had to report it immediately. It is likely that these benefits to retirees will disappear because of it. Nonetheless, the outrage in Congress was rather amusing, and it got the headlines they desired. Those corporations who take care of their retirees by following the law and informing their shareholders of material changes to their future financial conditions are evil, after all, and should be put out of business. Congress should pass a law, as they say. :)

Q. How will print buying by health care providers and marketers be affected by the new health care legislation?

A. This is more complex than one would think. The effect might actually be a slight rise in that sector, and then a steeper than average decline. First of all, the main sections of the law do not take effect for another three years or so. Just consider what's happened in the last three years with iPhone and social media, and one can realize that a lot can happen in communications technologies in that amount of time. What will three years of iPad and its imitators bring us?

There will be a lot of notifications and program information that need to be distributed. Much of this will have individuals submit data online or on a computer network, and then custom quotations or other  custom information will be provided. This will be a very important application for on demand printing and VDP.

I would expect that computer/data service bureaus, who already work with financial institutions and health care providers, would have an edge in getting this business. Privacy will be a very important issue, and these companies already have a strong track record for this kind of work.

All of that is likely to increase print purchases. However, they might not be coming out of marketing departments, but rather from the IT and customer service sides of these businesses and agencies. The value-added of well-executed graphic design and imaging are not usually considered important in these scenarios.

We also must remember that there is a very heavy emphasis in the legislation to rapidly increase the use of computer technology for medical information and to minimize the amount of paperwork as a means to reduce costs. Whether or not this will work is another matter, but it is clear that it will receive preference for funding. Rather than thinking about how the legislation might increase general use of print, which it won't, one should think instead of finding companies that sell medical records technologies and systems and try to grab some coattails of their marketing, training, and product development departments. Another sector that should do well are companies that develop and market computer and communications security and privacy products.

The bottom line thought is that when these new plans start to come to market, there will probably be a small surge in print purchases within those companies, but those higher print purchases may only last for 18-24 months.

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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