Crisis in Confidence

By Andrew Paparozzi
In September 15, 2008

What a weekend. Lehman Brothers is filing for bankruptcy. Bank of America, which was considered a prime candidate to buy Lehman, decides to purchase Merrill Lynch instead. AIG is scrambling to get an emergency loan from the Federal Reserve and raise capital. This can’t help but shake confidence in financial markets, not just in the U.S. but globally.

Has the other shoe dropped? No one knows how these and possibly other historic financial developments will sort themselves out. However, we do know that another round of asset de-leveraging will strain an already troubled economy.

Our industry is already in recession. We expect total sales (from all sources not just ink-on-paper) to decline 1.5% to 2.0% in 2008—the first drop since 2003. And volume will be declining even more. If this wasn’t bad enough, profit margins are being squeezed by sharply higher costs and strong resistance to price increases.

Some of the events this weekend may have been a surprise. But what’s happening in our industry shouldn’t be—at least not to NAPL members. We first warned of trouble in late 2006 and have been suggesting measures companies could use to protect themselves since—most recently in the NAPL SOI: 2008 Strategic Perspective and the Printing Business Conditions for March 2008 and May 2008. These measures included financial steps to deal with a credit crunch, cutting costs effectively, internal and external communications, and helping clients navigate the downturn. All along, the emphasis has been placed on the need to protect oneself not by hunkering down and hoping to ride out the downturn, but by also dealing with the structural issues that continue to redefine the print industry. The soon to be released NAPL State of the Industry Report 2009 contains a full chapter on additional measures companies can use for making recession an opportunity.

This weekend was a stark reminder that the financial crisis is far from over and that this downturn is not a short-term event. As some of the shock surrounding these major financial institutions wears off and the path forward becomes clearer, the stock market may begin to stabilize. That could come as early as tomorrow, next week, or it might take longer. But here’s what’s important to us: The economy is in for a prolonged period of sub-par performance. Commercial printing industry sales are likely to decline again in 2009, and profits will remain under pressure. What are the lessons from recent events? We must continue to be vigilant in being prepared to protect ourselves. And in an industry that continues to get more competitive and complex, it is critical that we play both defense and offense.

Andrew Paparozzi
Joseph Vincenzino
Kong Wang

Andrew Paparozzi

Epicomm's Andrew Paparozzi, Vice President/Chief Economist, is well-known for his accurate and thoughtful discussions on the economy and US commercial printing industry. A foremost author and speaker on economic business trends in the printing industry, Paparozzi heads Epicomm's Printing Economic Research Center.

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