by Vincent Mallardi
The New Year economic forecast calls for gross domestic product growth of 3.8 percent, compared to a less-than-forecast 3.5 percent GDP change in 2004. This nascent "recovery" will provide a 5 percent printing sales increase—but with less value-added.
Energy costs and a runaway international trade deficit are sapping economic vitality, especially in capital investment. Interest and inflation are moderately increasing, which means that deflated (or constant dollar) GDP could slide to zero or less, with real printing sales change diminishing to around 3 percent. This is also occurring in the European Union.
In this shallow environment, the smart money will follow the arguably dumbest.
Government/federal and state ($3.93 trillion, +5 percent; with $3.6 billion to print, +12 percent) will continue as the biggest demander of saddlewire books, direct mail and business forms, though ranked overall at number 23.
Health and human services ($1.2 trillion, +14 percent; with >$1 billion to print, +12 percent) and social security, entitlements ($550 billion, +6 percent; with $0.5 billion to print, +5 percent) will be the best bid-to categories. Defense and homeland security ($448 billion, +5 percent)—the billion dollar buyer in 2004—will be very guarded and tight in the New Year. Be aware that nearly three times the number of printers will be seeking work from governments, marginalizing markups.
State governments ($1.57 trillion, +5 percent; with $0.7 billion to print) will dramatically increase borrowings to lock in pre-inflation interest rates; good news for financial printers.
The highest achievement, and most profitable, private sector is banking/insurance ($2.65 trillion, +5 percent; with $14 billion to print, +8 percent). Commercial banking ($9 billion to print, +20 percent) will be the biggest double-digit growth category as consolidation continues, and institutions are permitted to issue charge cards other than from MasterCard and Visa. Bank on substantial personalized digital communication and signage, but not on paper payment documents. "Check 21," passed by Congress last year, will reduce demand by perhaps 20 percent in '05.
Property/casualty insurers ($2.8 billion to print, +6 percent) need premium growth as disaster claims devastate reserves. Free-standing inserts (FSIs), outdoor and ad specialties will be the print media of choice. Life insurance ($2.2 billion to print, -24 percent) will continue to be lifeless.
Taking a Step Down
Ranked Number 2, down from first place for the first time, is non-newspaper publishing ($103 billion, 0 percent; with $13.9 billion to print, -17 percent). Discontinued titles, reduced run lengths and direct purchases of paper in periodicals ($49 billion, -4 percent; with 2 billion to print, +13 percent) and adult trades ($8 billion to print, +7 percent), more than one-third of which may be hardcovers and high page counts. Commercial plants will be "outbounded" by the specialists with in-house finishing and distribution, again to the jeopardy of the generalists. The other areas of book publishing will be flat to negative as leading publishers like Thomson sell off or migrate titles and content to new media.
Medical products/pharmaceuticals ($339 billion, +4 percent; with $11.4 billion to print, +6 percent) will be the Number 3 print buyer in '05, led by pharmaceuticals ($154 billion, +9 percent; with $6.4 billion to print, +10 percent), which exceeds one-half of sector demand. Increased ROP and bind-in placements, and POP and packaging spends, will be prescribed to prop up demand and profit.
The proliferation of generics to more than a 15 percent share and 25 percent annual growth is the major threat to branded drugs, and is an additional opportunity for package printers. New Year settlements of class-action lawsuits against the producers of pain relievers will include prescriptive consumer print media for Merck, Pfizer and others.
Expect new packaging and promotions with "black-box" warnings. Drug research pipelines are again filling, along with FDA testing-related advertising and collateral. Stable will be medical products ($140 billion, 0 percent; with $3.4 billion to print, 0 percent) and biotechnology ($45 billion, +5 percent; with $0.8 billion to print, +6 percent).
Interrelated is Number 16: healthcare ($1.87 trillion, +5 percent; with $5.3 billion to print, +7 percent). Health insurance ($328 billion, +6 percent) and third-party administration ($251 billion, +5 percent) could admit $3 billion in printing invoices, about 15 percent or more than in 2004. Hospitals ($663 billion, +5 percent) are energetically branding and marketing, ensuring a $2 billion print spend in the New Year.
Softer in print will be Number 4-ranked computer software ($317 billion, +2 percent; with $10 billion to print, -2 percent). Though sales are increasing, especially for anti-spam, spy, hijack, virus and other 'bad'ware remedies, packaged software ($52 billion, -7 percent) continues to unwrap to downloads. Network and mainframe computing ($112 billion, +10 percent) are growing as users migrate to low-tech clusters of machines powered by microprocessors.
Microsoft, Sun and IBM all report double-digit growth in "virtualization" server-based programs, but the printing component is less than 2 percent. Hosting and memory and storage ($130 billion, 0 percent) are stagnant, just as printers are entering the once-hot market.
Only search-advertising providers like Yahoo and Google are succeeding, but at the expense of print. It's time to log off this sector, except in the export area.
Boom in Real Estate
At Number 5, real estate ($1.36 trillion, +7 percent; with $9.9 billion to print, +13 percent) will grow through the roof. Unprecedented foreign and pension fund acquisitions in commercial real estate ($368 billion, +12 percent), and interest rate-sensitive consumer demands for residential resale ($382 billion, +10 percent) will show well in sheetfed and coldset web promotional printing.
Mortgage fees ($61 billion, +19 percent) will rise with property values and be a $0.5 billion buyer of forms and collateral. Residential/ new housing ($388 billion, 0 percent) will continue as a lagging buyer of print in this sector at $2 billion. Rental housing ($146 billion, +5 percent) is up-and-coming in direct mail and coldset full-web print at over $1 billion.
Dialing Number 6 for telecommunications ($942 billion, +1 percent; with $9.9 billion in print, -8 percent) will go to "no-mail" as print sales continue to disconnect. Busy signals from wireless, including equipment ($184 billion, +12 percent) are mostly offshore, with some $2 billion in POP and support collateral printing.
Because access to radio spectrum frequencies is difficult in the U.S., extended Wi-Fi, or Wi-Max will be deployed in Canada, Mexico and elsewhere before here. All other "lines" (long distance, local wire, fibre optic and cable) are at saturation, including directories ($15 billion, 0 percent). AT&T, SBC and other conventional providers are in negative or zero growth. Telecom equipment ($103 billion, -10 percent) is declining in fierce price competition. Exceptions will be high-growth personal digital assistants (PDAs) and voice-over Internet protocol (VoIP) connection hardware.
Number 7-ranked automotive ($1.69 trillion, -2 percent; with $8.4 billion to print, +4 percent) is stalled in new and used vehicles ($700 billion, -3 percent) and rentals/leases ($237 billion, -12 percent). Consumer spending on durables, impaired by high debt and low savings, will cause the biggest brand and dealership shakeout in 50 years. Print promotional spending, in turn, will be driven up at the retail level. Sector growth will be confined to parts/repairs ($351 billion, +5 percent) and finance/insurance ($284 billion, +5 percent). Tires and other replacement items will rev up demand for folding cartons, outdoor advertising and POP printing.
Auto insurance rate hikes will pressure carriers to better brand and support agents and brokers with more co-op and print media spending.
Ranked Number 8 are packaged foods ($618 billion, +5 percent; with $8.4 billion to print, +8 percent), resurgent with new brands and offerings led by, yes, pet foods ($10 billion, +18 percent) and fresh packaged products ($212 billion, +9 percent). Flexo printers will sustain sales volumes among dry foods, snacks and confections ($148 billion, 0 percent). Stale will be sales of litho labels and board converting for bottled, canned, frozen/microwave and baked goods ($247 billion, +1 percent).
Some appetizing news: Kraft Foods, with a 5 percent market share, is migrating to low-carb, reformulated foods with a half-billion dollars more for marketing!
Thirsty will be Number 9 beverages ($307 billion, +2 percent; with $8.3 billion to print, +3 percent). The fastest growth segments will be waters ($21 billion, +10 percent) and coffees, other prepared drinks ($119 billion, +6 percent). The sales plan is to get these categories to buy print beyond labels and containers. Wines and spirits ($20 billion, +2 percent) and beer/malts ($45 billion; +5 percent) will pop $3 billion in packaging and promotional print, slightly above '04 spending. Sell promotional print to beverage importers, notably of Australian wines and European spirits.
Soft drinks ($37 billion, -8 percent), dairy ($35 billion, -7 percent) and juices ($30 billion, -2 percent) will continue their decline, but print promotional spending should increase 10 percent to over $3 billion. Label, metal decorating and paper packaging won't fizz until volumes eventually lift.
Related is food service ($545 billion, +9 percent; with $3.9 billion to print, +12 percent). Ranked Number 21, the sector's best buyers will be full-service restaurants ($363 billion, +11 percent), especially upscale chains such as the Cheesecake Factory. Fast foods ($94 billion, +6 percent) franchisers will increase advertising and servings after a tasteless, no-growth 2004. Institutional food service ($58 billion, -3 percent) will continue to decline.
Leaping to Number 10 is security ($436 billion, +31 percent; with $8.1 billion to print; +270 percent). The hot star is product/personal identification, a totally new $20 billion category with a whopping 15 percent to print. Radio frequency identification (RFID) chip embedment and reading will impact every supply chain from farm-to-fork, and bring substantial value-added to tags, labels, decals, legal documents, folding cartons, POP, books and most every other form of print and converting.
By Q3 2005 there will also be nanotech applications in smart labels and packaging that may systematically change appearance and visual information, and provide instructions for home appliances and other consumer devices.
Biometrics, using facial or hand recognition data stored in passports, driver's licenses and other identification, will also engage premedia and print. These are the most exciting prospects for the re-invention of our medium, and those embracing it will be the leaders.
Other security-related print will be among locks, safes and equipment ($62 billion, +11 percent) and data/document integrity ($71 billion, +30 percent). Keyless entry cards, anti-counterfeiting and copying features, theft warning/detection systems and other visual, electronic and chemically reactive products will sound an alarming $3 billion in print.
At Number 11, fashion ($428 billion, +5 percent; with $8 billion to print, +7 percent) will dress up in '05. New looks in footwear/hose ($69 billion, +5 percent), accessories ($91 billion, +5 percent) and intimate apparel ($17 billion, +4 percent) will account for two-thirds of sector printing, mostly heatset web or sheetfed catalogs and screen/digital POP. Niche retailers from Aeropostale to Urban Outfitters will wear print particularly well.
Pricier jewelry ($21 billion, +16 percent), especially watches, rings and pendants, will be the fashion leaders, and a billion dollar high-res print consumer.
Number 12-ranked investment brokerage/management ($663 billion, +12 percent; with $7.4 billion to print, +10 percent) will benefit from the five-year extension of $146 billion in mostly middle-class tax cuts and, if enacted, the partial privatization of Social Security. In addition, inflation-caused higher stock prices and inflation-hedged borrowing by governments and business will bump up commission and fee income in this space.
A new category, CO2 credits under the Kyoto Accord (in which the U.S. will eventually participate) could drive $100 billion in commissions and $1 billion in print. Robust personalized digital printing of trading proposals, viewbooks and direct mail, plus publication ROP directed at the 50-plus "boomers" heading toward retirement, will bring big returns to on-demand, lettershop and open full- and half-web printers. A marginal increase in the very low (1.5 percent) U.S. savings rate should occur by mid-year, and this will signal a big return of foreign investors to the equities market.
Home improvements ($678 billion, +3 percent; with
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