Market Outlook: Not Picture Perfect

Following a recession and a year of feeble recovery, all the arrows for print business are pointing up—sales revenues, level of manufacturing activity, hours worked. Economic growth, say industry pundits, is broad, substantial and sustainable.

GAM caught up with some of the analysts scheduled to speak at this month's NPES Print Outlook '05, the equipment-supplier group's 24th annual economic and political forecasting conference held in Washington, DC, Dec. 9–10. They previewed for us their market outlook.

First, the good news. Print industry revenues will show 4% growth this year, to $161.4 billion. And a 5% rise is seen over the next 15 months—happy news, indeed, following years of declining revenues or no growth. In 2002 and 2003 sales revenues were flat at $155.5 billion and $156.7 billion, respectively, says Ronnie Davis, chief economist for Printing Industries of America. Davis' presentation on "Opportunities and Threats in Global Print Markets" provides a snapshot of the current U.S. print industry: Through the first nine months of 2004, total print shipments were up 4%; ink on paper rose 3.5%; digital/toner printing +5.9%; and ancillary products/services +4.9%.

For 2005, Davis projects overall print shipments will be up 2% to 3%. The standout is direct-mail printing, at a 3% to 3.5% increase. Labels/wrappers/packaging and general commercial printing should increase just 2%; and periodicals/magazines and book printing will lag at about 1% growth.

Printers still have a lot of catching up to do before getting to pre-recession levels. "As encouraging as these gains are, we are bouncing back from very depressed levels," says Andrew Paparozzi, NAPL's chief economist. Printers in NAPL's continuously surveyed Printing Business Panel experienced gains of 4.1% through third-quarter 2004, after 20.8% declines over the three years prior.

Even more daunting: costs are rising for the first time in years, from paper and materials to energy to interest rates. Medical and health benefits costs also are rising. Most critical is a looming rise in postal rates. It's estimated that half of all printed material reaches the customer via the U.S. Postal Service, making up the majority of the 202+ billion pieces of mail delivered each year. An application to the Postal Rate Commission for a rate hike is expected in the spring. If approved, it would take effect in the spring of 2006. This factor alone has the potential of putting the kibosh on any ongoing print recovery, PIA's Davis says.

USPS internal data show that with every 10% increase in postage, mailings decrease by 4%. PIA estimates that each 5% rate jump cuts 52,000 print-related jobs, as large-volume mailers such as financial services, magazine, catalog and direct-mail providers reduce print runs and move to electronic alternatives. Bills before Congress to avoid rate increases by allowing the USPS to transfer billions of surplus dollars in an over-funded pension account died last session. Efforts to implement proposed postal reform based on a Presidential Commission's recommendations also went nowhere—though the next Congress is likely to be receptive.

"There are going to be double-digit increases in postal rates," predicts Davis. "Depending on what happens with postal reform, the increases could be as high as 16%." PIA is joining with concerned mailers in The Coalition for a 21^st Century Postal Service to lobby for gradual implementation of rate hikes. "[We] will need to make the case to Congress that the time to act on postal reform should be early 2005 in order to avoid further revenue loss," says PIA executive VP Ben Cooper, another Print Outlook panelist.

Competition among printers is fiercer than ever, despite consolidations and closures. Competition hits printers from every direction, including the Internet, television, multi-media promotional kits and, increasingly, from overseas bargain pricing.

Half the PIA/GATF members surveyed lost at least one order to imports in 2003, notes Davis. In his Print Outlook presentation, he acknowledges that while the U.S. still exports more than it imports, with 2003 export levels hitting $4.62 billion, imports to the U.S. increased 34% between 1998 and 2003, reaching $1.078 billion.

"The paradigms have changed; the economy's rising tide and the accompanying increase in ad spending is not enough to keep your company profitable," says Paparozzi. "Printers have to be prepared for growth; they have to take note of how the industry has changed. They are no longer part of the graphic arts industry but a part of the communications industry." Panelist Joe Cappo echoes that.

"All of advertising is still under considerable pressure, largely because of a rapidly growing number of media availabilities, both print and broadcast," says veteran media observer Cappo, now retired from Ad Age and past-president of the International Advertising Association.

Aided by the national Do Not Call list (which garnered 60 million names in a matter of weeks), marketers are revisiting direct mail, especially as personalization capabilities make it an attractive medium to reach consumers.

"Promotional material will continue to grow because advertisers are looking for more accountability and for more alternatives to television, which is having its own problems due to the great proliferation of cable and satellite signals," Cappo says.

However, Paparozzi points out that direct mail, or any other niche, is not the silver bullet. "Direct mail is facing postal issues; packaging—foreign competition; directory printers—the Internet," he says. "There are no free rides in any market."