It will come as no great surprise to many printers that 2001 has been a difficult year for the U.S. printing industry. Although the final statistics are obviously not yet available, there is substantial evidence that 2001 will turn out to be the worst year for U.S. printing companies since the 1990-1991 recession. Printers were already dealing with a tough year prior to September 11, and the economic fall-out from the terrorist attacks made a bad situation worse. According to a recent survey by Printing Industries of America, print sales during the month of September were down an average of 17%, compared to normal levels, and most printers believe that it will take six months to a year for print markets to recover. Ron Davis, PIA’s chief economist, estimates that total print sales for 2001 will be down 1%-1.5% compared to 2000 levels. Davis also predicts that the 2001 pre-tax profitability of the industry will be less than 2% of sales for the first time in ten years.

The National Association for Printing Leadership paints an equally bleak picture of printing industry performance in 2001. In its recently released 2001-2002 State of the Industry Report, NAPL estimated that 2001 print sales will decline between 2.5% and 3% compared to 2000 levels. NAPL also believes that industry profitability has been hit harder than sales. In surveys of NAPL’s Printing Business Panel conducted during 2001, reports of declining profitability were more than three times as frequent (55.2%), on average, as reports of rising profitability (16.5%).

Most printing company owners and managers, as well as most printing industry economists and analysts, will attribute the industry’s poor performance during 2001 to the slowdown that the overall U.S. economy experienced this year. In fact, almost 73% of printers responding to NAPL’s 2001 State of the Industry Survey cite the economy as their biggest concern. For years, the performance of the U.S. printing industry has been closely linked to the performance of the broader economy, and the statistics clearly show that printing is an economically sensitive industry. Given the close relationship between the financial performance of the printing industry and overall economic performance, the results for 2001 are easy to understand.

On November 26, 2001 the National Bureau of Economic Research, the official arbiter of business cycles in the United States, announced that the U.S. economy has been in recession since March of this year. Prior to this announcement, many economists believed that the U.S. was teetering on the brink of recession as the third quarter began, and that the events of September 11 pushed the economy over the edge. NBER supported this view when it noted in its official statement that, "Before the attacks, it is possible that the decline in the economy would have been too mild to qualify as a recession. The attacks clearly deepened the contraction and may have been an important factor in turning the episode into a recession." NBER’s assessment is supported by current economic data and forecasts. Advance estimates released by the Department of Commerce suggest that third quarter real GDP shrank at an annual rate of 0.4%. The October release of the Blue Chip Economic Indicators consensus economic forecast estimates that GDP declined at a 0.6% annual rate last quarter, will decline at a 1.3% annual rate this quarter, and will grow at a 1.4% annual rate in the first quarter of 2002. The Blue Chip forecast also estimates that GDP will grow 1.1% for all of 2001 and 1.5% during 2002.

Clearly, printing company owners and managers must always be prepared to respond appropriately and decisively to changes in the economic environment, and the ongoing downturn is no exception. But, it would be a mistake for printers to focus exclusively on current economic conditions or to blame the economy for all of the problems and challenges facing the printing industry. The "pain" created by this recession can easily mask much more fundamental and far-reaching changes that are underway in the graphic arts industry.

Like all industries, the printing industry is constantly evolving, and this evolutionary process, in time, changes both the economic structure of the industry and the ground rules that govern competition in the industry. Printers need to distinguish between the ups and downs in industry performance that are caused by the normal operation of the business cycle and those performance changes that result from shifts in the underlying economic and competitive structure of the industry. Recognizing the difference between these conditions is critical because they require very different kinds of responses. Weak printing industry performance that results from the periodic and short-term slowdowns that the economy experiences calls for tactical responses. The tactics for dealing with recession are those common sense business moves that printers hear about often – monitor cash flow closely, look for ways to reduce expenses, pay close attention to receivables, and intensify selling efforts.

Changes in printing industry performance that result from the evolution of the industry present a very different situation. These changes demand a strategic response. Because evolution alters the economic and competitive structure of the printing industry, printers must design new business models and formulate new business strategies to succeed in a changed competitive environment

This is the first in a series of four columns that will examine the evolutionary changes that are occurring in the printing industry and the strategies that printers can employ to respond to those changes. Next month’s column will outline some of the economic forces that are driving the evolution of the industry. The third column will describe the strategies that are available to printers who do not wish to diversify beyond printing, and the final column will discuss some of the issues that arise when diversification is the chosen strategy.