It’s Official

By Andrew Paparozzi
In October 4, 2010

The National Bureau of Economic Research—the organization responsible for dating U.S. business cycles—marked the bottom of the most recent recession at June 2009, making it the longest downturn since World War II. The declaration that the recession ended in the middle of last year left them open to ridicule and made them the butt of jokes on the late-night shows. However, a mid-year 2009 trough was being widely assumed by those who follow the data. Why the disconnect? There’s a general misunderstanding of what an end to recession means. It doesn’t mean that everything is back to normal—whatever normal is. It only marks when the overall economy stopped contracting. It tells us nothing about what’s transpired since or where we are going. Unfortunately for many, the effects of the downturn are still very much in place. This is definitely the case in the labor markets, where much of the spotlight still remains. Employment data are considered lagging indicators, but this is taking the term “lagging” to a whole new level. Why aren’t companies hiring? What will make them hire and when? The NBER pronouncement doesn’t give us answers. It does, however, negate the double-dip scenario as the group announced that any future decline in the economy will be considered a new recession—little comfort to those for whom it seems like it never left. 

Thus far in the recovery (second quarter 2009 to second quarter 2010), output for the nonfarm business sector has increased 3.6%. The increases can be essentially attributed to productivity, as total hours for all employees (new and existing) for the period were unchanged. Can companies continue to meet their output needs by boosting productivity? What should we make of the most recent decline in productivity? Productivity (output per hour) in the nonfarm business sector declined 1.8% in the second quarter of 2010, after rising 3.9% in the first quarter. Productivity for the April-June period did rise 3.7% on a year-over-year basis, so is the quarterly decline reason for concern? Before we answer that question, lets answer this one: Why the decline? Simply put, output (+1.6%) increased less than hours (+3.5%). Hours have now increased for three straight quarters, with gains averaging 1.8%. Companies have boosted hours, either increasing the workweek of existing employees, hiring, or both.

So, should we be worried about the sudden drop in productivity for the second quarter? It depends. If economic growth improves to a more robust level, so will productivity. In effect, the recent increase in hours will be absorbed by higher output. If growth remains sub-par, companies will attempt to offset any potential decline in productivity and control unit costs by once again restraining hours—maintaining/cutting the workweek and putting any hiring plans on hold. Current expectations lean towards the latter. Based on the latest consensus forecast from Blue Chip Economic Indicators, growth in the third and fourth quarters are expected to remain lackluster, with gains of1.8% and 2.3%, respectively.

According to the Bureau of Labor Statistics (BLS), hours for all employees in printing and related support activities declined 5.0% between the second quarter of 2009 and second quarter of 2010. Data thus far for the third quarter reveal a degree of stabilization. keep in mind that print’s recovery does not exactly mirror the economy’s, having only recently begun. Preliminary data show that among members of the NAPL Printing Business Panel, factory payroll hours increased for only 13.2% in August, while still moving lower for 47.2%. With a less-than-robust recovery and no lack of uncertainty, many printers are in a quandary: Do we sit tight and wait for clarity or do we try to make our own clarity? Of course the answer is not going to be the same for everyone. Some guidance is offered in the upcoming NAPL Capital Investment Study recently unveiled during the NAPL Critical Trends Summit at Graph Expo.

Andrew Paparozzi        Joseph Vincenzino        Kong Lue 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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