The Rule of Holes…and Paper Rolls

The First Rule of Holes is: “If you find yourself in a hole, stop digging.” If you Google “Rule of Holes” you’ll find lots of additional rules, and several different versions of the Second Rule of Holes, but to my way of thinking, the Second Rule of Holes is: “When you stop digging, you’re still in the hole.”

The Great Recession was a great big hole in the economy. The recession is over; we stopped digging. But, we’re still in the hole. That’s why the recovery doesn’t feel very good.

So, how big is the hole for paper and print, and will we get out in 2011?

The Federal Reserve’s index of industrial production for print and related support activities is a good indicator of print activity. Paper demand is another. From 2007 to 2010, the Federal Reserve Index fell by 23 percent. During the same period, paper demand fell by 19 percent. Actually, paper demand fell by 24 percent from 2007 to 2009, and bounced back by 4 percent in 2010.

2010 Index

What do these indicators tell us about what lies ahead? To get some insight into that question, it’s helpful to look back and see what was happening before the recession.

From 2000 to 2007, the Federal Reserve Index fell by 8 percent and paper demand fell by 3 percent. The difference can be attributed to a number of factors, but no matter how you look at it, the trend for print and paper was flat to slightly negative before the recession.

There was a little bounce-back in paper in 2010, but no bounce back in print. In fact, The Federal Reserve print index hit bottom in March, and then fluctuated in a narrow band, actually hitting a new low in December.

The conclusion: While there may be a little recovery as advertisers catch up on print that was delayed rather than cancelled, the numbers suggest this will be minimal at best. We can’t expect to return to pre-recession levels for paper or print, or anything close to it. The numbers suggest that any bounce back will be minor, and we will then return to pre-recession rates of decline of 1-2 percent per year, from this new lower level.

Jack Miller is founder and Principal Consultant at Market-Intell LLC, offering Need to Know™ market intelligence in paper, print and packaging. Previously, he was senior consultant, North America, with Pira International.

Known as the Paper Guru, Jack is the former director of Market Intelligence with Domtar, where he also held positions as regional sales manager, territory sales manager and product manager. He has presented at On Demand, RISI’s Global Outlook, PRIMIR, SustainCom World and at various IntertechPira conferences. Jack has written for Printing Impressions, Canadian Printer, Paper 360, PaperTree Letter and Package Printing, along with publishing a monthly e-newsletter, MarketIntellibits.

He holds a Bachelor of Arts degree in Economics from The College of the Holy Cross and has done graduate studies in Statistics and Finance.

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  • http://RichLancaster Rich Lancaster

    Hey Jack.

    Are you really sure the recession is over?

    QE2 may be lifting inflation so it feels like the recession is over, but the reality is we are attempting to stimulate our way out of the hole, and in this analogy the digging is “debt” and we are adding more debt on debt to try and get out of the hole.

    So, from my vantage point we are sitting in the bottom of the hole and the Fed is digging all around me still!

    Real growth is nowhere in sight that I can see, just inflation-related growth that will evaporate as soon as the stimulus ceases, and cease it must – – at some point.

    We may get as far as QE3 before the proverbial hits the fan, and the bottom drops out of the hole we are sitting in and we go deeper in to the final hole.

    I do believe that the immediate future will show “economic growth” – maybe GDP at 2-3% this year, and maybe for another year or two, but sooner or later we have to pay the piper, it can’t be put off forever, can it?

    Cheers Rich

  • http://JackMiller Jack Miller

    Thanks for your comment, Rich, and I can’t disagree. Technically of course, the recession is over, but as we’ve both said, we’re still in the hole.

    And yes, it is scary. Maybe there’s another Rule of Holes: When you stop digging, make sure no one else is around you digging, or worse, digging under you setting you up for a collapse.