Look for the Positives—There are Some

By Andrew Paparozzi
In September 15, 2010

In recent months, we saw a relatively constant drumbeat of disappointing data on the economy. Lately, some indicators have come in better than expected, once again pushing the specter of a double-dip recession and deflation into the background. Nonetheless, consumers remain reluctant to spend, the housing market is not recovering, and neither is the labor market. Second-quarter GDP results were revised lower to a 1.6% growth rate after adjusting for inflation, and judging from recent data, the third quarter is not shaping up to be a rousing success. The latest consensus from Blue Chip Economic Indicators showed further erosion in the economic forecast, with expected growth in inflation-adjusted GDP for 2010 slipping to 2.7% and 2011 to 2.5%. As recently as July, the consensus called for growth of 3.1% and 3.0%, respectively.

That most of the available data points were giving a troubling message at the same time shouldn’t be all that surprising—the variables are all connected in one way or another, so, when it rains it pours. For instance, consumers are reluctant to spend because they see the job market remaining weak and many households are seeking to repair their debt-laden balance sheets. Corporate balance sheets appear to be in better shape, but many companies aren’t seeing any significant pick up in demand down the road. So, other than making necessary replacements and boosting automation, they aren’t seeking to make investments for expansion. The same is true for their hiring plans. With the job market remaining weak and layoffs continuing in large numbers, it will remain difficult for the housing market to recover despite lower home prices and record-low interest rates. But not all is doom and gloom. The economy is not as weak as it was being portrayed. It’s not great; it may not even be good, but it’s not falling off a cliff. Even the much-maligned second-quarter GDP results contained some positives. Real gross domestic purchases rose at an annual rate of 4.9% in the second quarter, up from 3.9% in the first. So, somebody’s spending, and it’s not just government. Business spending on equipment and software in the second quarter was up 15.8% from a year ago after adjusting for price changes, while corporate profits are up more than 39.0%.

Although it no longer tracks the economy as closely as it once did, our industry is not immune to economic developments. Thus, it’s not surprising that the pullback witnessed in the economic recovery is reflected in the business indicators we track through the Printing Business Panel. If we were seeing otherwise, there would be something amiss with our indicators. Preliminary data show the PBI for August at 44.1, still below the 50.0 threshold (the percentage of companies reporting business is picking up is equal to that of companies reporting business is slowing) and still below the April reading of 46.7. But, here too, there are some positives. The latest reading was slightly higher than June’s 43.7—the recovery in our industry has been painstakingly slow and may have paused but it’s not deteriorating. For August, slippage in current business conditions and factory payroll hours, was offset by improvement in confidence, volume, and prices. We will discuss these and other results in the upcoming NAPL Printing Business Conditions.

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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