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JPMorganChase Analyst to NYC Printers: Economy Stronger Than Appears

Press release from the issuing company

February 4, 2003 -- (By contributing WTT columnist Patrick Henry) -- On January 30, the U.S. Department of Commerce reported growth of only 0.7 percent for the national economy during the fourth quarter of 2002—the latest in a string of cheerless numbers from a seemingly endless business downturn. That same day, a senior economist for JPMorganChase Bank urged a group of New York metro area printers not to fret, because the Commerce estimate is preliminary and "may be indicative of absolutely nothing." In fact, said Marc Goloven, the economy is holding up reasonably well despite its fourth-quarter stumble and has good underpinnings for an eventual full recovery. Printers and other manufacturers have braced themselves against "the potent headwinds buffeting the economy" by making strong gains in productivity, he noted. Mr. Goloven, whose state-of-the-economy briefing to printers is an event presented annually by JPMorganChase Bank and the Association of Graphic Communications (AGC), didn’t try to minimize the depth of the downturn or the severity of the hardships that it has caused. Joblessness remains a national concern, he noted, and "recession" continues to be the operative word for printers and others in the much-battered, little-comforted business environment of New York City. Nevertheless, Mr. Goloven said, leaving fourth-quarter results aside, an economist’s-eye view of the situation shows that growth in 2002 was not far off that of the fat years from 1996 to 2000. Assuming that America’s tenth postwar recession "arguably ended" in 2001, what followed was a year of recovery—but only at half the pace typical for the first year following a recession. This meant that from the fourth quarter of 2001 to the third quarter of 2002, the economy grew by a respectable 3.25 percent, only about one percentage point below the pace of 1996-2000. The recovery is real and under way, said Mr. Goloven, "but we just haven’t felt it yet." What we have, he explained, is not "a classic recession recovery cycle," but "the descending of a massive dose of sobriety on this economy" after the dot.com-spiked binge of its boom period. Now it’s universally acknowledged that "not everyone is going to retire at 40 with an eight-figure 401(k)," he said. One reason that the press, some pundits, and many people in the street think of the recovery as weak is the fact that it has produced so few jobs, Mr. Goloven continued. However, he observed, "the jobless recovery reflects one of the fundamental strengths of this economy": its ability to get more work done with fewer people on the payroll. The secret is a "continued growth in productivity" across the board, equivalent to a gain in output of five percent per person per hour nationally, according to Mr. Goloven. Printers and other manufacturers have led the charge here, he said, and it is because of their efforts that increased output in the first year of recovery "has been accommodated by the existing workforce, simply toiling more intensively." He added that this "mismatch" between output volume and workforce size probably will continue to be the norm, causing the recovery to remain a jobless one. It will also be marked by a near-absence of inflation, which Mr. Goloven described as "strikingly subdued"—but not so subdued, he said, that the Federal Reserve Board has ruled out further cuts in short- and long-term interest rates to kick the economy into a higher gear. The prospect is in fact for "ever lower interest rates," according to Mr. Goloven. He also commended the Bush administration’s policy of "aggressive stimulus" through tax cuts, noting that "whatever puts money into the pockets of consumers will benefit the economy" since it is, after all, "on the back of consumer spending" that virtually all recent economic growth stands. State and local governments can do their part, he added, by refraining from tax hikes that could undercut the recovery by leaving consumers with less to spend. Thus there are plenty of reasons to believe that the pallid fourth-quarter estimate will be revised upward and that the state of the economy is "brighter than popular perception permits," Mr. Goloven concluded. But he admitted that his optimism stopped short at the New York City line. In the five boroughs, Mr. Goloven told his AGC audience, which included some of the metro area’s most prominent printers, the trauma of 9/11 continues to haunt memory and stifle recovery. The "shudders of Wall Street" and the "bust of Silicon Alley" have caused the city to shed 125,000 jobs in the months since the disaster, including 6,000 in the printing industry. With an unemployment rate of 8.4 percent—2.4 percentage points higher than the national figure—the city’s economy will continue to "meander sideways" in recession, showing "virtually no growth" in the foreseeable future, Mr. Goloven said. The economic outlook is somewhat better in the surrounding counties of Long Island, New Jersey, and New York State, where, according to Mr. Goloven, "a figurative seawall has developed that has prevented New York City’s recessionary tide from engulfing" its neighbors. He encouraged those struggling inside the seawall to remember that printing still represents the "largest factory activity" in the city and state and that metro printers are "building a platform" of recovery for their industry through increased productivity. The "restorative process" now being undergone by industry is difficult, Mr. Goloven conceded. "But I have never seen an industry emerge weaker rather than stronger" after it was over, he said. The program, hosted by AGC president Susie Greenwood at JPMorganChase Bank’s Park Ave. headquarters, also featured briefings by JPMC executives and other business advisors to the industry. According to Michael R. Lopez, a CPA with the firm of Amper, Politziner & Mattia, "people in this business tend to invest in the front end of their businesses, but seem to forget about the back end: good financial reporting systems." A system with stated profit goals and regularly monitored performance is essential to strategic planning and successful borrowing, he said. Daniel J. Clarke, a JPMC vice president, explained what he called the "three major issues" of creditworthiness for would-be borrowers: leverage, with respect both to liabilities vs. net worth and to the timeframes of payments, collection, and manufacturing; cash flow generation; and collateral for asset protection. Lenders take all three into account, he said, and may be willing to tolerate softness in one area if there is strength in another. Leasing options were the focus of remarks by John W. Hricay, an assistant vice president with J.P. Morgan Leasing Inc. John Hyde, a principal of Rampart Associates LLC, discussed what printers can do when they find themselves owing more money on a piece of equipment than the equipment currently is worth. "Negotiate the difference," recommended Mr. Hyde, an attorney who specializes in strategic acquisition, mergers, and restructuring "problem loans" in the graphic arts industry. "Today is a great climate" for working with commercial lenders to reduce payment obligations, according to Mr. Hyde. In some cases, he said, "you can get down to 30 or 40 cents on the dollar, and you’re not in the land of litigation and bankruptcy." Patrick Henry is the director of Liberty or Death Communications, a consultancy specializing in research, education, and writing for the graphic communications industry. Contact him at (718) 847-9430 or at [email protected]