by: Dr. Ronnie H. Davis and Ed Gleeson
An excerpt from the report from Dr. Ronnie H. Davis, vice president and chief economist, and Ed Gleeson, manager, economic and market research, Printing Industries of America Economic and Market Research Department
The Economy: Recession and Recovery
The Great Recession of 2007-2009 was a dramatic departure from the relatively mild recessions of the past two decades. The departure is true in both intensity and duration when compared to the last two recessions of 1990-1991 and 2001-2002. Indeed, even when compared to the last recession approaching this level of severity, The Great Recession scores high in creating economic damage and havoc.
The good news is that after lasting an official eighteen months, the recession has been declared over as of June 2009. However, while the recession may be over, the recovery appears stalled as the economy has taken to moving in an essentially sideways direction. Since peaking in the fourth quarter of last year, the growth rate of economic activity has declined with a very weak 1.6 rate in the second quarter this year and 2.0 percent in the third quarter.
Typically, the steeper the economic decline, the stronger the recovery. However, this is definitely not true of this recession. In fact, the recovery gap between this recession and the last similar magnitude recession (1981-1982) is large and has increased significantly through the past six months.
Where will the economy go from here? A look at the full recovery paths of the past four recessions should provide some guidance. While there is considerable variation in the recovery paths among the last four recessions, the average first year and second year increases in inflation-adjusted GDP are 4.6 percent and 4.2 percent respectively – healthy gains (Figure 1).
As we look forward to the path of the economy in 2011 and 2012, much uncertainty remains even after the November election results. However, based on a number of factors, including the election, the likely outlook has improved. At this time, the most likely trajectory of the economy over the next two years is a somewhat stronger rebound with inflation-adjusted growth of 3.3 percent in 2011 and 3.5 percent in 2012. While this is not a robust recovery, at least it is improved from just a couple months ago.
Other less likely scenarios include a sluggish recovery and a return to recession (the dreaded double dip). While these are less likely scenarios, we present them as alternatives for your own planning purposes if conditions change over the next few months.
Using these same three scenarios, we can focus further on the quarterly pattern of economic activity over the next twelve months. In the forecasted most-likely rebound scenario, the economy bounces up to 2.7 percent growth the first quarter and picks up speed in each of the next four quarters (Figure 2).
Whatever path the recovery ultimately takes, labor markets will remain in an over-supply situation for a while. A standard rule of thumb is that the economy has to grow at around five percent for a full year to lower the unemployment rate by a full percentage point, so it will take considerable time to soak up the large pool of unemployed and discouraged workers that have accumulated over the last three years. Further, the time it takes to return to job creation and a resulting reduction in unemployment has been increasing over the last few recessions.
Even with the growth rate forecast in the likely rebound, the unemployment rate will range over nine percent for most of 2011 and more than eight percent for 2012. The most likely path of the unemployment rate is a range of 9.0-9.5 percent next year and 8.5-9.5 in 2012.
If unemployment behaved like it did in past recessions, by 2011 the unemployment rate would be 6.5 percent, while if it was consistent with recent recessions it would fall to 9 percent by 2011. Based on current trends, we do not expect the unemployment rate to drop below 9 percent until 2014, the government forecast is more optimistic; they expect unemployment to drop to 7.9 percent by 2012. Price changes should remain in check for the next couple of years given the slack in the economy. However, inflation risk may start rising with the incessant bond buying and money creation over the past couple of years, as well as the purchases at the end of 2010 and early 2011 already announced by the Federal Reserve.
Inflation for the full-year 2010 is expected to be around 1.2 percent, which is just about the minimum level targeted by the Federal Reserve as a “healthy” rate of price change. The outlook for inflation in 2011 is for a slightly higher rate of about 1.7 percent as the economy recovers. Expectations for 2012 are more uncertain, but at this time, a rate of around 2 percent is a reasonable forecast.
Assessing the Damage: Print and the Great Recession
According to Printing Industries of America’s print market tracking model, the Great Recession shrunk print’s economic footprint by historic proportions last year. The number of U.S. printing plants declined to 33,565 – down from 36,508 or 8 percent in 2008. Total shipments in 2009 (not adjusted for price changes) were $140.7 billion – down from $166.6 or 15.6 percent industry wide. Employment declined by 6.9 percent from 976,400 to 909,200.
In total, 2009 print markets declined by 2,943 plants, $25.9 billion in total shipments and more than 67,000 employees. After adjusting for declines in printing prices, real or inflation-adjusted printing shipments decreased by about 9.1 percent. Even after the declines, print’s economic footprint is still substantial compared to other U.S. industries and remains a major American industry.
This report presents PIA’s annual review of the economy and print markets during the past year, plus our economic and print market outlook for the next twelve to twenty-four months. Additionally, we offer an assessment of longer-term competitive issues for printers. The objective of this report is to serve as a resource to plan the year ahead for your firm. Also, since it provides alternate scenarios in many instances, it also can be used to make mid-course corrections as the year unfolds. To purchase the full report, contact PIA at 412.259.1770 or visit www.printing.org/store.