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Updated Macroeconomic Indicators: Manufacturing Inflation and Declining Wages

In Monday'

By Dr. Joe Webb
Published: January 17, 2011

In Monday's column, we cited our macroeconomic indicators and explained why there are some serious problems in the economy. Businesses are seeing increased materials costs, cannot pass them through to the marketplace, and are paying for those increased costs with greater productivity. That productivity should be going to the workers, but instead workers real earnings are declining. Unfortunately, data released at the end of last week show that situation as worsening (click on the image to see a larger version): The disparity of consumer prices on the store shelves (CPI) and producer prices (PPI) is widening, which means that businesses are still going to be cost-cutting and viewing new expenditures with a skeptical eye. The question is how they will pay for the difference, but there may be another situation to watch out for. Last time there was a significant difference between the CPI and PPI, the economy collapsed with a thud. We need to be cautious in this regard, since the Fed's second quantitative easing is still underway, as they continue to create money at a rate beyond the rate of production of new goods and services. (click on image to enlarge) Businesses will maintain an inward focus that limits employment rather than an expansionary focus that would increase employment. Investments that reduce costs are the ones that will get funded. Printers have always approached clients with projects that increase sales and decrease costs, but they have always been in the context of printing. Now, with print alternatives that are common, and often preferred (such as social media), it's harder to show a decrease in cost since social media has virtually no production or distribution cost. The creativity of printers in this environment is challenged, and the focus should be on making the total media effort of the client more productive by finding ways to make print worthwhile because it increases the effectiveness of their nonprint media. That sounds strange, of course, but it is one important way to stay connected with clients. There are no critical economic data being released until the last Friday of the month, when we get the first look at GDP for Q4-2010. It should be a good report, but not a great one. There will be many businesspeople who will be shaking their heads wondering why they're not seeing an upturn. It may be possible to get them to reconsider their cuts in promotional costs as being detrimental to their business volume, and that your business can help them. The printers who have been diligent and honest about their change to being marketing service providers in the truest sense of the meaning can do better than their peers in this kind of environment.

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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