Case Study: Case Of What Do We Do Now?, Part I

Since I wrote my last column, I have held six four-hour public seminars on "Surviving the Economic Downturn" in different parts of the country. I talked, of course, but I mainly wanted to learn from the questions and concerns I heard from the attendees. What is different since all of the bad economic news? Are there real fears? And, if so what's the answer to, "What do we do now?"

I'm committed to doing as many of these sessions as I can until we get a better picture of the general printer population. (See the seminar schedule at www.cprint.org). What have I learned so far? Well, I changed my mind on one thing. There is not panic and fear among printers. However, and this is where I have changed my mind from the last article, there is not as much concern as I think there should be.

The reason I changed my mind is many printers are still dealing with the easily fixable issues of getting over the train crossing and don't see the locomotive bearing down on them. To some extent, it is because we're not as familiar with economics in general. Now, understand that I don't think we should panic or fear. But we should be concerned and actively doing something about it.

Recession

Let's begin with the big picture and work down to our shop level. What is meant by the economy being down? The overall measurement referred to is the gross domestic product (GDP). Simply put, that's sales. It is the sales of your business added to the sales of my business added to the sales of General Motors and all other businesses located in the U.S. So if you sell printing to General Motors and they, in turn, use that printing to produce an auto that they sell to someone else, we count both transactions (sales). That's okay, as it is just an overall measure of the economy. It's the best one we have, anyway.

In the old days, our main measure was the gross national product (GNP). That's the total sales of U.S. companies regardless of where the sale took place. Before the global economy, Exxon was a U.S. company and Toyota was a Japanese one, so it was a relatively good indicator. That got out of hand when Toyota built a plants in the U.S. and Exxon began buying and selling oil that never entered the country. So we stopped focusing on GNP and started to focus on the more relevant GDP.

So what is good and bad, or how do we read the GDP scoreboard? When sales are up, or the GDP is up, that's good. Most of us really don't pay attention to it at our level. In April 2008, the GDP was reported at $11,717.4 billion. As recently as January 2000, the total was $9,847.9 billion, for an eight year increase of about 3%, which is nothing to write home about, but an increase nonetheless. The 10 years prior (1998 to 2008), there was a 13% increase overall. Better, but nothing like the 1990-2000 increase of 36% (www.data360.org). So growth had been slowing through April 2008, then we saw a decrease of 0.15% in the July 2008 quarter.

We don't have any more recent data since it takes time to compile. But all leading indicators, as well as the news, show sales (the economy) are definitely down since then.

So how do we read the scoreboard? A recession is a significant and broad based decline in economic activity lasting more than a few months (National Bureau of Economic Research). The rule of thumb generally used is two consecutive quarters of negative growth of the GPD—that is, sales are down in the second quarter compared to the first; and then sales are down in the third quarter compared to the second.

What's broad based? Normally, you not only see declines in overall sales (GDP), but also a decline in employment, real personal income, wholesale/retail sales, and industrial production. The consensus is we entered a recession in the fourth quarter of 2007 (Oct-Dec), but it wasn't until last fall that it began boiling over in the news.