Nearly 200 printing industry professionals took time out at a busy Graph Expo to attend our annual breakfast meeting, sponsored by manroland. This was the 9th year WhatTheyThink and manroland have sponsored this popular event.

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The general economy is having problems again, and the confusing signals that it produces should not be that confusing. We're bouncing along a bottom, and the risks of recession are becoming more broadly accepted.

I'm still tiring of the constant drumbeat that "uncertainty" is what is causing businesses to be reluctant to expand or hire. It's exactly the opposite. It's dead certainty. All businesses know that tax rates are rising, they know that it will be more expensive to hire employees and include benefits, and they know that inflation or erosion of purchasing power are ahead of them. All of these are matters of fact or law, and there's nothing uncertain about them.

The snapshot of our macroeconomic indicators tell the tale. GDP is well below the post-WWII average of +3.4%, and even below the sub-par levels of the last decade (+1.6%), as well as below the decade prior to the start of the recession (+3.0%). The final revision of Q2 GDP will be released on Thursday, September 29, and it should be in line with the last release of +1%.

As followers of this column know, we prefer to use the year-to-year comparison for economic reports. The Bureau of Economic Analysis reports GDP as an annualized figure compared to the prior quarter. This can be misleading because of the extent of the revisions they make every month, but comparing the 3-month and 6-month trends with the Y-Y one can give a sense of the underlying trends.

Productivity remains higher than GDP, so we know that national employment will not be improving. When GDP is greater than productivity, only then do companies start to hire. The productivity data indicate that businesses continue to focus on efficiency rather than expansion. Until that changes, employment will contract in many businesses and industries.

Lately, inflation has started to slow, but the Y-Y comparison shows some figures of great concern. The key number here is real earnings. The inflation rate may be slowing, but earnings are going down. Workers are being paid less, and what they are being paid is eroding in purchasing power.

Why are earnings so bad when productivity has been mildly good? That productivity is never being seen by workers because it is being used to pay for increased costs of production materials and other factors that affect operating businesses. (Personal anecdotal report: my consulting practice just had a +30% increase in medical insurance; other businesses are grappling with similar changes).

These indicators do not bode well for the economic outlook. Yet, there are some prognosticators who believe that the economy will rebound.

There are some economic forecasters who rely on interest rate levels as a gauge of future economic growth. The Leading Economic Indicators published by the Conference Board is one of those models, but there are many others. Because these models rely so heavily on interest rate levels, they can't be trusted. A common forecasting rule of thumb is the shape of the yield curve. That is, when short-term rates are lower than long-term rates, it is bullish for the economy. When it is the other way around, it is bearish. Because the Fed actions have been so grand, these rules of thumb and quantitative models built on them are prone to give false signals of any direction. Now that the Fed will be working to bring down longer term rates, false signals may increase.

It is likely that a recession is already underway, and that real earnings are already showing it. Instead of classical inflation, we are seeing an erosion in purchasing power that has the same result: goods are more expensive to buy.