Economics & Research Blog
Thoughts and Rants that Run Through My Head
Cary Sherburne wrote a post on PrintCEOBlog about the effect of the stimulus on the printing industry,
By Dr. Joe Webb
Published: March 11, 2009
Cary Sherburne wrote a post on PrintCEOBlog about the effect of the stimulus on the printing industry, and she quotes me there. There is actually nothing in the stimulus for printing, other than the hope of grabbing coattails. There are clearly preferred industries, and she highlights them. The difference between government spending on projects and tax cuts is quite simple. Projects are handled through a proposal process, generally through known companies. Money freed up by cuts in marginal tax rates has to be competed for. That is, markets comprised of millions of buyers and sellers have to work hard to attract those dollars. No one can know in advance where those dollars will go, and for what purpose, or to whom, so any business that wants to be a magnet for those dollars has to make their offerings known. That is done through advertising, promotion, and other communications. The stimulus plan makes it clear: it goes to proposals made to agencies that have very specific and well-known channels and processes for approvals. There is no sales process in that scenario that would stimulate the use of print. There is no “shovel-ready” print project. Any benefit that goes to print will be taken away with the increase in marginal tax rates on Subchapter S corporations and proprietors as proposed, anyway. Go ahead and grab some coattails of stimulus-favored businesses, but it won't be enough. Sorry, we still have to be entrepreneurs and navigate whatever the market hurls at us.
What made printers think there was something in the stimulus, anyway? Do people actually think that there's a line in the legislation that says “Printing: $X Billion”?
Remember, the Congressional Budget Office has already stated that under the stimulus, wages will stagnate because of a lack of business investment. On page 4 of this report, the CBO states “The reduction in GDP is therefore estimated to be reflected in lower wages rather than lower employment, as workers will be slightly less productive because the capital stock is slightly smaller.” Employees will not “feel the stimulus” because their wages will not be rising. The other problem is that the excess money creation by the Fed to save the banks will most likely end up as inflation, so workers will see those flat paychecks buy less.
Over the past year, we've lost -55,000 workers. Roughly, that's -$9 billion in sales volume using $165,000 per employee. But that's not a good estimate, because every employee added or subtracted is related to marginal or incremental sales. But it's a scary enough number to ponder, even if it's actually half. If the number of workers was declining in our industry because of massive investments in automation and new technology, it would be quite a different story. I guess that old saw about the industry needing 60,000 new employees every year has taken a good shot to the gut.
Time has made a list of the top ten most endangered U.S. newspapers. The list isn't long enough. The industry piled up lots of debt based on their reputation for strong cash flow and great margins. Then, the importance of eBay and CraigsList were never appreciated, and gained footholds under the radar. Newspapers (except the Wall Street Journal) gave their content away for free thinking it would build up their brand and build their print audience. (Guess they never heard that thing about “why buy the cow...”) Then Google messed up everything. They kept paying attention to that “content is king” stuff, when their content has the life of a whole day (that's why they're daily newspapers... gosh, it was right under their noses...) when content was never king, but their distribution channel to a regular and loyal audience was. Whoops! They forgot that content was the key and not “the king” to unlocking the value of the larger endeavor. The whole thing's a mess. Then they started saying bad things about their competitors about not being professional. Yet those bloggers in their pajamas kept getting big stories right. It's so strange and surreal. Somehow it seems newspapers getting what they deserve, and unfortunately taking thousands of workers with them. Someone will blame the economy for their demise and really miss the point.
Exxon, which was everyone's villain during the oil price spike, despite having a profit rate at the bottom of the Dow 30 Industrials, is making $29 billion of investments in its facilities and exploration, while their competitors are not. It's not getting much coverage in the press. They plan to exceed $25 billion for each of the next five years. The CEO said “We believe it is important to ignore the noise.” Part of being a CEO is knowing how and when to listen, but in the end, there is something to be said for deafness, and sticking to your mission. Consensus is often a haven for managerial cowards. There's actual leadership going on here. Shocking!
More important, however, is the fact that this is exactly the time to be investing in whatever business you believe will prosper in post-recession years. Think of it: many competitors are on the ropes, many vendors will do almost anything to get your business, and all of the people who refused to give your company the time of day in sales settings are probably looking for other jobs. It's like someone came by and wiped the business slate clean. Of course it's easier said than done, but there is no time like an economic slowdown to just rethink everything, and not just retrench. The toughest part is getting out from under legacy equipment based on the market of the past and not the market that's ahead. But even that can be done, especially through joint ventures or mergers. And as far as Exxon goes, they're not waiting for a stimulus package, and they know that their company and their products are targets of many special interests socially and legislatively, yet they still see reasons to invest.
That reminds me of Wal-Mart's recent financial reports, as they're making money when other retailers aren't. There's the constant harping about low prices as the reasons for people shopping there and all the usual disparaging stuff. Almost nothing is written about the company's constant investments in information technologies that permeate their market-leading logistics and transportation. Sure they're able to get great deals from their suppliers, but they make sure they retain those savings throughout their merchandise management process. Low prices are their long-term strategy, and it allows them to weather the storm, and believe it or not, spend proportionately less than their competitors on advertising and promotion because their strategy is so crisp and clear. Remember, K-Mart was a heavy user of newspaper inserts, and Wal-Mart was only occasionally in that game. Who's still around? A clear strategy that is obvious to customers is something to be striven for.
It's really funny watching cable TV financial talking heads when they spew things about big rallies in the stock market. Hey folks... the market has to DOUBLE to get close to historic highs, and that's not even considering inflation.
The travel industry has been fighting back. This industry employs some of the economy's lowest skilled and lowest paid workers, who are hurt the most when companies decide to cancel meetings and events for economic reasons, but lately for public relations reasons. It's hard to think of any industry that's not hurt in this process, but it's always the front line workers who get cut first. It's hard to think of an industry where someone without a completed high school education can actually work in and through diligence work their way into low level managerial positions. (The same goes for the fast food industry, where someone can actually be trained for front line management positions often through little more than longevity in a high employee turnover business and diligence and a desire to make ones life better). But think of what happens when travel gets cut: no hotel rooms, no hotel transportation, no air travel, no airport parking, no baggage handling, no airport food concessions, no food or restaurant purchases during the visit, no meeting materials and promotional printing... oh yeah, it even affects us. The printers who got into event signage with wide format printers and devoted resources to supplying promotional items for meetings and exhibitors, and presentation materials for conference attendees, are hurt. I'm surprised we haven't gotten more on board with their fight. The “overpaid” CEOs, executives, employees, and customers, can get by without having that meeting in a vacation locale. But the workers in that locale often can't. The economy is connected in amazing and mysterious ways, and one thing always touches another in ways that cannot always be anticipated.
See the letter that hotel CEOs sent to Congress.
The other day someone asked what would happen if you took the top 5% out of the per capita personal income table that I offered in my column this week. This is the kind of argument about averages where you ask everyone in a bar how much they make and calculate the average. Then Bill Gates or Warren Buffett (or both!) walks in and changes the figures so dramatically the average no longer makes sense.
It reminded me of the effect of the top 5% of income earners. Per capita income would drop considerably, but not because of their exclusion from the calculation. It would drop because very few in the bottom 95% would have the jobs that those in the 5% would provide via their businesses or the spending that they do. Who is this top 5%? To be in that group, your tax return, joint or individual, has to exceed $153,000 in adjusted gross income according to 2006 data. This group pays 60% of the Federal taxes. So the 95% would have to be taxed more to make up for that amount. One of the problems the governments regularly face in recessions is that high income earners have very volatile incomes, as noted in numerous studies. This is especially true of business owners. good years are really great, and bad years are really really bad. It is not uncommon for a business owner to be in the top 1% one year, and in the bottom 50% the next. The actual point of the per capita personal income table was that despite the recession, personal per capita income was staying steadier than other macroeconomic measures, and this was not being reported by the press. There is an underlying resilience to the economy that is underappreciated, though that resilience is being tested, as it was in other recessions.
That $250,000 that's bandied about as the threshold for “rich” is the top 2% of taxpayers, which represents 2.7 million tax returns and $492 billion in Federal taxes, which is 48% of Federal tax collections.
It also reminded me that personal income never tell the whole story. One of the best discussions of this topic was in the New York Times last year, which analyzes spending by income level.
I'm often asked why I use Twitter. It's basically my notepad so I have a convenient place to stick notes and links to what catches my eye. Some of the folks I follow and others who follow me bring things to my attention I would not otherwise see. And then, there are comments of others that are just priceless. I particularly enjoyed this one someone Tweeted during a Bernanke speech: Bernanke says we should try to smooth out the business cycle; proposes buying giant robot steam iron from Japan.