What a Difference a Year Makes

By Andrew Paparozzi
In April 24, 2009

At this time last year there were concerns of mounting inflationary pressures. Producer and consumer prices
were showing year-over-year increases of 6.7% and 4.0%, respectively. The latest data from the Bureau of Labor Statistics (BLS) show that, at the moment, inflation is essentially non-threatening. Producer prices fell 3.5% for the 12 months ending March 2009 and consumer prices were down 0.4%—the first 12-month decline since August 1955. Nonetheless, fear of a deflationary spiral developing during this recession has subsided. After stripping away food and energy prices to arrive at so-called “core” inflation, the compound annual rate for the last three months show producer prices increasing 2.6% and consumer prices up 2.2%.

While concern about deflation has lessened, apprehension about inflation reemerging should remain relatively subdued. Granted, a justifiable case can be made for concern about potential inflation down the road resulting from all the ongoing fiscal and monetary stimulus being pumped into the economy. But, that’s down the road. Inflation should be in check during the near term. With industrial production falling 1.5% in March, the index is 12.8% below March 2008 and at its lowest level since December 1998. The steep decline in output has resulted in the capacity utilization rate for total industry falling to 69.3%—its lowest level since the series began in 1967. Capacity utilization for manufacturing was down to 65.8% in March compared to 77.8% a year ago. With utilization rates at these levels, it’s difficult to envision any sustained pricing power.

Clearly, printers are experiencing vastly diminished pricing power, and more and more companies are lowering prices to hold on to volume. A near record 48.0% of the NAPL Printing Business Panel reported that their prices in March were lower than a year ago, while only 17.0% reported higher prices. As recently as September 2008, the reverse was true—46.2% of the Panel reported higher year-over-year prices and 17.0% lower. A steep and pervasive drop in volume—more than three quarters of Panel members reported lower volume in March compared to a year ago—goes a long way to explain current pricing conditions in the industry. For a full discussion of current business indicators for the commercial printing industry and the
ever-present need to tackle structural change, see the soon to be released NAPL State of the Industry: Strategic Perspective 2009.

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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