Economics & Research Blog
Dr. Joe Answers Economic Webinar Questions ? Part 1 of 2
By Dr. Joe Webb
Published: December 10, 2009
On Wednesday, December 9, we had our economic webinar with Dr. Joe Webb, Director of the WhatTheyThink Economics & Research Center. The podcast and slides can be downloaded, for free.
Q. When will the recovery actually start, if they waited eleven months for us to be in a recession before they decided we were in one?
A. Remember, they will declare a recovery when the economy comes off of the bottom, and not when it reached pre-recession levels. It seems the “experts” want to see a couple of months of +100,000 payroll jobs in the unemployment report before they declare a recession end. They don't use the two consecutive quarters of GDP growth, but that won't stop cable TV talking heads and many business people from using that as the guide.
Q. Whose statistical models are these for the printing industry?
A. The data series are generally from the U.S. Department of Commerce, but we maintain the series and use techniques such as 12-month moving totals, and we also use a wide range of inflation adjustment methods. For example, the Department of Commerce releases monthly printing shipments, but we create 12-month totals of those data, but also inflation-adjusted data of the same series using the Consumer Price Index, the Producer Price Index, and the Personal Consumption Expenditures adjustment. Overall, we maintain about 400 different data series for the economy and the printing and related industries. To see some of the issues related to inflation adjustment, they are described in a column from 2008. Our Monthly Printing Shipments report, sold on the e-store, has some more background and discussion every month.
As far as the statistical methods, we are using software such as Forecast Pro and SmartForecast, as well as what we build on our own using functions and basic analysis in Excel. We build models of industry demographics, employment, and shipments. By using multiple models as a baseline, we then use qualitiative inputs from what we can detect from the marketplace in terms of technology and other trends, since statistical models can only work on history (the old saying is that “models are great at predicting the past.”)
Q. What is the historical accuracy of these forecasts?
A. I don't know how to answer that other than they seem to be accurate. We spend a lot of time with these things in terms of building some robust methods that do not rely on quantitative methods alone. We're running our forecasts every month, which does help, and we do go back to compare the prior forecasts with history to see how they did.
As far as historical accuracy, back in 1999, in my old TrendWatch days, I said “we'll call 1998 the good old days.” Based on some other forecasts, I became known as Dr. Doom. It all panned out, unfortunately. One of the reasons it did had nothing to do with the statistical methods, but because we were regularly surveying and tracking the graphic design, advertising, and publishing markets, and used that as our input that the printing business would have difficult times after 2000. It did not go over well, especially when industry shipments were apparently rising. The Lords of Printing were not pleased, especially when I said the printing equipment buyers would find they had a strong upper hand in negotiations for equipment because of those factors.
At that time, we did not have the broader and more integrated forecasting approach we use today. In the end, forecasting an industry is difficult and can only see identify exact turning points in retrospect. It's always better at long term trends, and not as good at short-term changes.
The question reminded me that back in a webinar in 2005 I made the statement that the industry needed to be concerned about the industry after 2007. No statistical data series indicated the problems that started at that time would happen, but a monitoring of changes in communications technology, broadband adoption, declining costs of computing and connectivity, did. This is why we always show the statistical models and the “WhatTheyThink” forecast which is our judgment based on all of those factors.
Q. Is the print dollar forecast real (inflation adjusted) dollars (and if so, what rate do you assume) or nominal?
A. The answer earlier explains some of this. Inflation-adjusted is always to the most current Consumer Price Index, so all forecasts going forward are on the same base. As far as the current dollar or nominal forecast, we don't publish those, we just plug the data into the forecasting software and it crunches away, so an average inflation rate is already embedded in the data.
Q. Are the data for new manufacturing orders correct?
A. They are from the Institute for Supply Management, and have a good general track record for providing a good general direction of that sector. Old timers may remember the organization as the National Association of Purchasing Managers.
Q. Why do you use the NASDAQ in your forecast? The S&P is down about 28% since 12/07. Isn't the S&P more broad based?
A. When we set up the recovery indicators, we explained the reasoning behind all of the factors in January, so it might be good to look at that. Ultimately, I felt that the S&P had too much weight on financials, the Dow 30 was too big, and that the NASDAQ, despite large companies like Apple and Intel, had enough non-financial companies, leaning to the technology side, that it would give us a better barometer of a recovery.
Q. How concerned are you about the combatting the momentum in the marketplace about "do not print" in financial statements/bills and in general advertising? Is there enough collaboration with paper industry to ensure future print industry viability?
A. The paper industry is obviously going on its own. I don't know what collaboration there could be. They've worked very hard to keep paper prices up, contributing to the inability of print to be competitive with the constantly declining costs of new media. The “do not print” movement is deeply ingrained in the culture. As long as someone has to walk a green bucket with all of the paper their family has used for the week, the more attractive “do not mail” efforts will be. This is despite the fact that they can't walk all of the coal that is burned to excite all of the electrons that are used for digital media anyway. It will take a long time to turn “do not mail” inclinations around, and doing so it will be only divert resources away from the rampant new media opportunites that are now emerging.
Q. Thank you for being candid about the future. It has been some difficult time for all of us in the industry.
A. This has been hard on everyone, and it's really important to have the reasons for everything in context. I really worry that there are many companies that really think they can wait this out. I worry more about companies that have backed themselves into corners financially, with equipment that does not fit the marketplace, and sometimes that equipment is new, and get into the viscious cycle of thinking they can price their work at a level to stay busy, when demand for what they do is declining. The common theme is the importance of urgency to act in some very creative ways.