Profitability Squeeze Continues

By Andrew Paparozzi
In July 11, 2008

We know that overall profit levels are being hit by weak economic activity and rising costs. Data from the Bureau of Economic Analysis (BEA) show that on a year-over-year basis, the growth in corporate profits before taxes (without inventory valuation and capital consumption adjustments) turned negative in the first quarter of 2008 (-3.8%). Indications are that most likely the slide continued in the second quarter. In 2006, profits rose by almost 14.5%—quite a come down. Profit levels are down, but what about profitability?

Data in the last release on Productivity and Costs from the Bureau of Labor Statistics (BLS) show that unit profits for the nonfinancial corporate sector fell 5.8% in 2007, wiping out the entire increase for the previous year. The decline continued at a similar pace in the first quarter of 2008. Note that the drop off in unit profits occurred despite gains in productivity (output per employee hour) of 2.2% in 2007 and 3.0% year-over-year in the first quarter of this year.

We can see from these data that a profitability squeeze essentially is occurring economy wide and printers are not exempt. Close to half (47.6%) of the NAPL Printing Business Panel reported pre-tax profitability decreasing in June compared to last year—almost double the 25.6% reporting that profitability was increasing. Exactly half of the Panel reported that their prices in June were higher than a year ago, but for many not enough to protect profitability. In the current environment, productivity gains are as important as ever, if not more so. But clearly we need to take other steps.

Joseph Vincenzino

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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