Economic and Print Market Update and Outlook
by Dr. Ronnie Davis, senior vice president
Printing Industries of America
America’s printing industry has experienced healthy growth over the past couple of years with printers’ shipments, prices and profits trending up. Print generally has outperformed other manufacturing sectors in shipment growth, according to US Census of Manufacturing data.
The Institute for Supply Management (ISM) tracks US manufacturing activity in monthly surveys. Over the past few months, the printing industry has ranked near the top in three key metrics among the 18 manufacturing sectors tracked – shipment growth, new order growth and employment growth. Print has even scored well in export growth, although the industry is generally a domestic producer.
There are a number of factors responsible for print’s resurgence:
- The US economy is in the seventh year of recovery from the Great Recession of 2007-2009. Although the recovery has been sluggish with fairly tepid growth, it has been a sure and steady climb without interruption.
- Print typically takes a while to get on track after the economy recovers from a recession, but once print recovers, it does best in the mature recovery phase of the economy. Since we are in the seventh year of growth, print has hit the sweet spot.
- Most of the severe displacement of print by digital media is now behind us, so print is back as an industry that will grow in normal economic times.
- Print logistics – our term for labels, wrappers and packaging print – serves as an anchor on print sales as it generally tracks very closely with the overall economy.
- Over the last few years, print marketing and promotion – in particular, direct mail – have demonstrated effectiveness as a premium marketing and promotional media.
- The print sector most impacted by digital media – informational and editorial print (books, newspapers and magazines) – has been doing relatively well lately.
- Lastly, printers themselves have adjusted their business models to take into account the new industry trends and realities. This is especially true for members of Printing Industries of America since they have access to programming from their local affiliate and their national organization.
Print sectors: What’s hot, warm and lagging?
Early this year, PIA surveyed printers regarding 28 specific print sectors. Our analysis divided the sectors into hot, warm and lagging performers. There were 10 hot print markets with sales growing by more than 2.2 percent over the previous 12 months.
Another 10 sectors were classified as warm with sales increases from 1.9 to 2.2 percent over the past year. Even the eight lagging market sectors still grew – from 1.4 to 1.9 percent.
Profits holding steady
Printers’ profits have recovered from the devastation of the recession and finally returned to their historical highs. On average, printers typically earn around three percent on sales. Profit leaders (printers in the top 25 percent of profitability) do much better – earning an average of over 10 percent on sales and with some making much higher rates. Profit challengers (printers in the bottom 75 percent of profitability) basically break even.
PIA’s economic and print market outlook
The current economic expansion was seven years old in June, and the average post-World War II recovery has been around six to seven years, so this one is old. The expansion also is weak – averaging only around two percent growth over the duration. In fact, it is the weakest of 11 post-war recoveries.
PIA’s most likely economic outlook for 2017 is for a continuation of the weak recovery with economic growth of around two percent. But, there is a 20 percent likelihood of accelerated growth and a 30 percent likelihood of recession given the increasing age of the expansion. However, our analysis indicates that the chance of a recession is highest the second year after a presidential election – in this case, 2018.
PIA’s outlook for print markets, based on our most likely economic scenario, is for continued growth in print sales of around two percent in 2017. This sales rate will enable printer profits to remain at their present historically high level.
Print management issues
PIA’s new report, Effective Management Practices in the Printing Industry, demonstrates that successful printers use a variety of management practices that enable them to maintain higher profits in both good and bad economic times. Six key management practices associated with higher profits include:
- Senior management focus on financial ratios – such as PIA’s Dynamic Ratios
- Senior management focus on quality
- An entrepreneurial focus throughout the organization
- Goal-setting by senior management and communicated throughout the organization
- Senior management strategic thinking and vision of organization purpose
- Use of social networking to promote business
Another key to success is managing people. High profit printers have much lower people costs as a percent of sales.