The national economy should begin a recovery in the first half of 2002, setting the stage for more robust growth late in the year and in 2003, but print markets may lag behind the overall economy in their return to good times. Those were the forecasts of several speakers at the 21st PRINT OUTLOOK conference presented in Washington, DC December 3-4 by NPES. The conference, with the theme "Market, Economic and Political Instability: Rebuilding Confidence in 2002," featured presentations by industry economists, experts on emerging digital technologies and industry trends, corporate managers, and a briefing by representatives of the Bush administration. More than 100 people attended, the largest attendance in recent years despite the persistent slump in business travel. PRINT OUTLOOK speakers cited evidence that the national recession may have already "bottomed out," and that a modest recovery could be underway within a few months. Among highlights of the conference: Dr. Keith Davidson of Davidson Communications predicted that even though the volume of printed documents produced each year will continue to grow strongly through 2010, the total amount of information being disseminated will grow even more dramatically, resulting in a "polarized market." The market will be divided between a price-driven "lowest cost" component and a variety of niches in which business success will be based on specific capabilities more than pricing, he added. Davidson predicted that the volume of printed documents created will double between 2000 and 2010, but the total information volume will rise by a factor of four. Print's share of the document market will decline from slightly more than 60 percent in 2000 to less than 50 percent in 2010. Adoption of digital technology to enhance production, implement and augment print procurement and manage assets is moving across a range of printing operations, he said. Prof. Frank Romano, Chairman of the School of Printing Management and Sciences at Rochester Institute of Technology, reported research results showing that "over the last three years we lost about $36 billion in revenue that did not come into the industry that would have come had there been no Internet." Romano also warned PRINT OUTLOOK attendees of a "domino effect" arising from lost printing volume. With lower revenue come impacts on investment in equipment, use of consumables, purchases of paper. These declines in turn affect industry dealers, trade publications (whose advertising shrinks), associations, delivery services, independent consultants and other industry constituents. "When revenue goes down it affects the entire industry," Romano said. "New digital technologies are reshaping both the demand and markets for print, and the manner in which print is manufactured," he said. He predicted a continuing decline in the number of printing businesses, noting that companies need to have access to sufficient funds to stay current with technology that will allow them to "do it faster." NPES consulting economist Dr. Michael K. Evans provided his annual update on macro-economic trends, forecasting that even though the national economy may be in recovery by mid-2002, "corporate profits will remain sluggish, and it follows that things that are important to the printing industry, like advertising, will also remain sluggish." Evans commented that although in GDP terms the current recession will probably be "no worse than the mild recession of 10 years ago...capital spending has fallen much more than usual." Chief among the reasons for this trend, Evans said, is the sharp decline in corporate profits. Operating profits for American companies dropped by 20 to 25 percent in the third quarter of 2001, he said. While wages are not up, other items that impact corporate profits, such as signing bonuses and stock incentives, doubled, he said. Health care and pension costs are also rising, an profits are also being hit by excess capacity and lower stock market gains. Though the economy was very weak in the second quarter, Evans said there were signs of an upturn last summer, but "the bottom fell out in September. After September 11, we had to reset the recession clock entirely." The total decline in GDP over a four-quarter period beginning with the third quarter of 2001 will be between 1.0 and 1.5 percent, Evans said, which is comparable to the1990-1991 slump. He predicted that unemployment will reach 7 percent by the end of 2002, and that an overvalued U.S. dollar will also slow recovery. Looking at the international picture, Evans saw a global slump with few, if any, bright spots. The Japanese economy remains mired in recession and faces unemployment rates of 10 percent or more. Europe may grow by only one percent in 2002 and Latin America "is turning into a basket case," Evans said. "Not many countries in the world will keep their heads above water," he added. "You're in for a rough year," he told the conferees. "The economy will recover, but you have to give it time. Only in 2003 can we expect to see a robust recovery." Andrew D. Paparozzi, Chief Economist with the National Association for Printing Leadership, warned that print company managers today must be especially careful to ensure that "the decisions made today, under the extreme pressure of deep recession, do not impair long-term competitiveness." "This recession is both deeper and broader than the one in 1990-1991," he said, noting that the effects of the previous recession were concentrated on the coasts while the current one is having nationwide impact. Moreover, he noted, the printing and publishing industry faces some long-term structural issues that existed before the recession and will persist afterwards, including the cost of keeping technologically current and the industry's intense price competition. He predicted that print sales may decline as much as 3.7 percent this year and another 2 percent during the first half of 2002, before recovery begins. At the same time, Paparozzi reported that NAPL's Printing Business Panel surveys report more and more optimism about both 2002 and 2003. More than a quarter of the panel now expect business to improve during the next six months, double the rate found in September. As additional good news, Paparozzi noted that "productivity is moving in the right direction again. That's very important because productivity is the foundation of profits, and capital investment, employment, purchasing power...in effect, recovery." Citing the survey, services for which printers expect demand to grow fastest in the next two years include digital printing, fulfillment, mailing, database management, as well as four-color or more litho work. 61.8 percent of printers surveyed plan to add fulfillment services; 55.9 percent plan to add mailing, and 49.5 percent plan to add digital printing, while 32.7 percent plan to add database management. One of PRINT OUTLOOK's liveliest sessions was presented by merger and acquisition specialist Harris M. DeWese, Chairman and CEO of Compass Capital Partners. DeWese "named names" in discussing several of the better known merger failures. In one case, DeWese blamed a company's bankruptcy on "lousy, greedy, stupid senior management, followed by lousy management that was helped by a lender gone brain dead." In 2002 and 2003, he added, "there will be no more valuation craziness," including purchase price multiples of more than six times profits. DeWese predicted that 30 to 40 merger transactions will be completed in 2002. PRINT OUTLOOK participants traveled to the Eisenhower Executive Office Building for a briefing by three officials of the Bush Administration, in which the speakers stressed the need for quick action on the Bush economic stimulus proposal and thanked NPES for its consistent support in Congress. "Since the president called for this plan we've lost another 400,000 jobs," said Marc Sumerlin, Deputy Director of the National Economic Council and deputy assistant to the president. "We really need to take action fast." Accelerated depreciation for capital investments, a key part of the proposal strongly supported by NPES, "would be good tax policy whether we were in a recession or not," Sumerlin said. Other speakers at the White House briefing were Reuben Barrales, deputy assistant to the president, and Kasey Pipes, associate director of the Office of Strategic Initiatives. They provided an update briefing on the war against terrorism and the ongoing homeland security effort. National Association of Manufacturers President Jerry Jasinowski warned the PRINT OUTLOOK attendees that economic data showing early progress toward a recovery may be misleading, and a true, sustained recovery can't be expected until late in 2002. "GDP growth will go from negative to positive based almost entirely on the inventory cycle, and chiefly on auto sales," he said, noting that zero-percent financing offered by auto makers has indeed boosted sales strongly but is likely to be discontinued early in 2002. Then, he warned, "auto sales will dry up." "We're extremely vulnerable in the first quarter because all we have is an inventory swing," Jasinowski said. "We see investment spending turning positive in the second quarter," he predicted. "The picture for 2002 is basically positive but sluggish in many sectors," he said, forecasting annualized growth of 1.7 percent in the first quarter, 2.4 percent in the second, and 3.5 percent the rest of the year. TrendWatch Director Vincent Naselli briefed the conference on what his firm identified as "five forces to be reckoned with," including: - The changing nature of print itself, with print work migrating to non-print distribution and more and more work being printed on the desktop. - Prepress independence, as more and more creative personnel and publishers move image acquisition, design and prepress functions in-house rather than outsourcing them. - Acceptance of "good enough color" as the demand for fast turnaround overwhelms attention to subtle color issues. - Growth in Internet based services being offered by print companies. - Continued consolidation and restructuring, as large commercial printers continue to close plants and smaller shops "are scooped up by savvier companies." Naselli focused particularly on the creative marketplace, where he noted that the great surge in web site design has played itself out. "The website buildout is complete. Most companies have a website," Naselli said. Today, graphic designers identify collateral print as their #1 sales opportunity. "They're trying to go home to print but finding that someone has moved the house," he said. Printing Industries of America Chief Economist Dr. Ron Davis forecast "a bounce-back beginning in the first or second quarter of 2002," but warned "print markets are not going to recover quite that quickly, and not as much as the economy as a whole." Comparing current sales forecasts to those PIA had developed before September 11, Davis estimated that sales from the third quarter of 2001 through the end of 2002 will be $6.3 billion lower than they would have been in the absence of the terrorist attacks. Over the same six quarters, industry profits will be about $1.5 billion lower, he said. Printers are increasingly exploring ancillary services as revenue sources, and these sources are accounting for more revenue growth than traditional print. Davis also moderated a panel of executives from commercial printing and trade finishing companies, who provided their "in the trenches" perspectives on what's happening to their business as the recession proceeds. "My customers are telling me there's not much future in custom trade finishing," said Brent Eckhardt, President of Eckhart and Company, a bookbinding and information packaging specialist in Indianapolis. "Finishing of short run jobs, especially, is staying at the printer or moving to the customer," he said. "Short runs are not making it downstream, and the longest runs have always been the province of large printers with their own in-house capabilities." Michael Murtaugh, President of MJM Printing, a $3 million commercial printer in Rockville, MD, predicted "Internet based solutions will continue to grow but it's going to be slower than everyone thought two years ago. Although MJM is considering buying a larger offset press or a wide format digital output system, it is planning no significant new investments for at least six months, Murtaugh said. ColorCraft, Inc. of Sterling, VA, predicts its first annual sales decline in 2001 and President James Mayes says the company has taken several aggressive steps to build both sales and profits next year. The company has trimmed its workforce, tightened its credit policies, reduced its debt and generally, Mayes said, positioned itself for profitability even in a challenging economy. "The next two or three months will be really tough, but then we'll see an improvement," he predicted. An expanded summary of the conference is available on the NPES web site at www.npes.org. Conference proceedings may be ordered for $150 from the Member Services Department by telephoning 703/264-7200 or e-mailing [email protected]. NPES is a U.S. trade association representing nearly 500 companies engaged in manufacturing and importing for sale or distribution of machinery, equipment, systems, software and supplies used in every printing, publishing and converting process from desktop design and image generation and processing to multiple output options and targeted dissemination systems.