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The Economy: More stuffing than turkey

A former boss of mine has a phrase &

By Dr. Joe Webb
Published: November 25, 2008

A former boss of mine has a phrase “dynamic inertia,” where there's lots of activity but you're still in the same place after expending a lot of energy. Certainly sounds like the economy, where we're whipsawed by credit markets, stock markets, economic news, swinging from pessimism to optimism to a an appreciated pause to catch our breath.

GDP, not surprisingly, was revised down from -0.3% to -0.5% for the third quarter. We knew when the Bureau of Economic Analysis had more data to work with that this would be the result. This is the lowest GDP quarter since Q3-2001 when it was -1.4%. Two of the last four quarters have been negative, and the average growth rate for that period has been +0.8%.

Consumer confidence increased slightly, but is still in a rather bad place. The slight move up was probably the result of lower gas prices.

Calls for more economic stimulus are constant, and some may pass before inauguration. Stimulus programs do not work, but have great visibility in the media. Investment, on the other hand, has no fan following. Another bubble of money is being created with the combination of the active Fed and bailout funds. What neither act can do is increase the velocity of money, that is, how quickly it is turned over in the economy. Banks are lending, but they are extremely cautious. Velocity? Money's got a flat tire and we keep trying to pump air into it but we haven't fixed the leak.

Unemployment payments were extended for additional weeks. This is despite years of research showing that extensions actually increase the unemployment rate, and do not change job search habits, this is popular legislation Research shows unemployed workers increasing their search activities just prior payments running out, no matter how many weeks that is. I've updated our analysis of initial claims data and will present it in our webinar. The employment picture is not pretty, as we know, but historical data and rules of thumb are not adjusted for the size of the workforce. We're actually not much above historical averages for initial claims.

The problem is still a lack of investment. Companies are cutting back which will create an illusion of productivity in the economic data. Anytime productivity is greater than GDP growth, unemployment results. If that's the case, then, any stimulus packages should increase the demand for goods and start to cure the problem. Unfortunately not. Demand comes from the activity of creating goods and services and then workers getting paid for their role in it. People who are not busy creating goods and services do not demand the goods and services of others. What's really hurt consumer confidence is that there are still signs of inflation in food prices; for years wages have not kept up with inflation. Combine that with the fact that their savings are questionable because of sharp declines in virtually every asset class. The consumer is bloodied and battered. No wonder retailers started Black Friday sales this past Sunday. Look for an aggressive retail season, with slim profits, except for Wal-Mart, who knows how to play the game on a daily basis.

There is a great economic skirmish between the stimulus-seeking Keynesians (he promised he would be dead) and the investment-seeking Austrians is playing out right before us. One Austrian economist, Peter Schiff, was belittled over the last two years, but just watch this YouTube compilation of his appearances now and see what you think. I've told my son, who still thinks he wants to major in finance, that this is a great time to be in college and watch all of this play out, rather than dealing with it in the trenches like us business folks are.

A good article about the Austrian view of depressions and recessions is here.

The Internet Advertising Bureau released their online advertising data as compiled by Price Waterhouse Coopers. When the data are in for 2008's magazine and newspaper ad spending, Internet spending might now be close to the same size (especially since the magazine ad data is dubious). So much for the idea that e-media is “unproven,” huh?

A recent survey of marketing managers show a continued push to online media. The article about it states “Direct mail has experienced a decline in efficiency over recent years. But it remains a reliable tactic that produces strong results for companies in all industries and products. For many companies, however, the direct mail budget is a place to cut. In place of glossy brochures or dimensional mailings, expect to see a proliferation of postcards and personalized letters, which can be produced at less cost.” The big winners in the survey are social marketing and especially e-mailing to house lists. I still think the latter is a great opportunity for print businesses.

Remember: recessions are excellent times to propose new ideas to clients and disrupt business relationships of competitors. It was nice to read this article about a western Massachusetts printer who uses knowledge of postal rates and regulations as a competitive weapon.

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



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