Somewhat of a Surprise

By Andrew Paparozzi
In January 30, 2009

The Bureau of Economic Analysis (BEA) just released advance results for fourth-quarter GDP, and to no one’s surprise the data revealed a steep decline in economic activity. For the October-December period, inflation-adjusted GDP fell at an annual rate of
3.8%—it’s worst performance since the 6.4% plunge in first quarter of 1982. The decline wasn’t nearly so bad as some feared—a mild surprise. The consensus
forecast from Blue Chip Economic Indicators was for a 5.2% drop, with the lower end of the group looking for a drop of 6.2%. The results came in closer to the
upper end of the group. Can we breath a sigh of relief? Not just yet—remember GDP results are backward looking. But it might be the first indication that recession may not be so bad as the most pessimistic pundits fear.

What’s unusual about the recent period? Fourth-quarter GDP data before adjusting for inflation was even worse, dropping 4.1%. That hasn’t happened since the first quarter of 1950 and reflects a 4.6% decrease in the price index for the quarter. If this continues for a quarter or two, that’s one thing, if it becomes systemic, that’s a whole new ballgame—and it’s not going to be any fun. This is why the Federal Reverse is pulling out all the stops from keeping interest rates at negligible levels to assuming an enormous amount of assets on its balance sheet. In addition to attempting to assist financial institutions, the Fed’s actions are in effect boosting the growth up money supply sharply. While much of the focus is now on the stimulus package being debated in Washington—the eventual package will provide some stimulus maybe not as much as some hope—we shouldn’t lose sight of what the Fed is doing. Its overall impact over the next year in boosting the economy potentially could be greater.

The impact of falling prices is certainly something printers have come across before, especially during bouts of extensive price cutting—companies slashing prices to keep work coming in regardless of how profitable. Preliminary results show 31.6% of the NAPL Printing Business Panel reporting that their prices are lower than a year ago. This compares to only 11.9% of the Panel reporting lower prices in early 2008, and represents the highest percentage of the Panel reporting lower prices since March 2004. And the recession isn’t over yet, not even close. Lower prices on top of lower activity does wonders for sales revenue, and highlights the need to continue improving efficiency/productivity and holding the line on costs as best one can. We’ve included some suggestions in reports from the NAPL’s State of the Industry Series, and will continue to do so in upcoming reports. While uncertainty abounds, we know that many printers are experiencing the challenges of declining prices. Now imagine this happening economy wide, and it’s not hard to see why the Fed is doing whatever it can and then some to prevent it.

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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