Fridays with Dr. Joe:

January 23, 2004

- Economic Roundup

- Why Do People Read Magazines, and Why Should I Care?

- To Buy or Not to Buy: A Pressing Question

Economic Round-Up

Weekly initial jobless claims were down by 1,000, lowering the four-week moving average to 344,500, decreasing the prior week's revised average of 347,750 by 3,250. These are seasonally adjusted data. The raw data were actually down 190,318 from the previous week. The reason for such a wide gap is principally the adjustment for holiday season retail workers. It's good to look at unadjusted data because those are real people. (I don't ever recall meeting a seasonally adjusted person, although San Diego 's weather might aid in that process.)

On The Web

Confounding the experts again, housing starts were up once more. It's expected that housing will run out of steam, but the demographics and interest rates are just too strong a pair of factors to underestimate. Speaking of estimation, this data series has a habit of being revised upward as well. Don't worry, experts, you can get jobs forecasting New England weather.

On The Web

A Federal Reserve report indicates that total household wealth has reached levels not seen since the peak of the stock markets in the Spring of 2000. That is, increases in the value of real estate and stocks have finally made up for the stock losses, including the NASDAQ dropping from 5200 to 1500. That index is now in the 2100 range, and these data may show that many households avoided at least some of that precipitous drop. This is yet another reminder of the importance of looking at the total context and realizing that most people have portfolios, some of them planned, some of them not. Barring a sudden drop in either stocks or real estate, this is an underreported and very positive turning point for the economy.

WSJ (Subscription Required)

Score at least one for the experts, though. The Conference Board's Leading Economic Indicators were up +0.2%, just as they expected. Growth looks widespread, and the report estimates that GDP for the last half of 2003 looks like it will be in the range of 6% (we already had 8% for the third quarter). The Board adds "...continued growth in the leading index in recent months is signaling that strong economic growth (in the 5.0-6.0 percent range) should persist in the near term."

On The Web

Back to top

Why Do People Read Magazines, and Why Should I Care?

The Magazine Publishers of America released its "Magazine Reader Experience Study," and it has good information beyond just magazines. Gosh, could it really be that "it makes me smarter" is a driver for people to be loyal to a magazine? Yes. That editorial stuff really matters, even if one cynical accountant I spoke with many years ago referred to it as "unpaid space." Something that would make that accountant happy, though, is that readers actually value advertising. While it seems trite, the report's findings are generally applicable to presentations, sales calls, and all kinds of content creator and audience interactions. The report has lessons for all of us, no matter what medium we use to communicate with our target audiences.

On the Web 

Back to top



To Buy or Not to Buy: A Pressing Question

This week's interview with Stephan Carter of Komori indicated that there is some increased demand for presses. In my column of January 9, I noted that industry profits had hit bottom and were starting a rocky road upwards. To have that confirmed by some new press orders is indeed relieving concerns I have had that capital equipment had been paralyzed, and that there was a chance that it could stay that way for quite a while. We won't have a reading on 2003's fourth quarter profits until April, but this bit of news may indicate some reasons to be encouraged. We’ve got quite a way to go to get close to 2000’s profitability, but for a long journey like that it helps to be facing in the right direction.

Why buy new presses at all? That's the question coming from many who believe that the industry has a persistent overabundance of presses that drive print prices down. I addressed that assertion in some columns last May, but this interview prompted me to readdress the subject of investment and the industry.

Print prices are not driven by supply or capacity alone. They are the result of demand as well, and we know that there are many more alternatives to print than ever before. These non-print alternatives are relentlessly grasping at constrained corporate budgets controlled by buyers muttering some nebulous words about “provable ROI.” When print prices go down there is less money to invest in capital equipment, or so the story goes. But when print prices go down, it can also be a sign that companies have made investments that reduce their costs (I hate to keep mentioning Wal-Mart and Southwest Airlines, but these are two good examples). There are many companies that have remained profitable during our industry downturn, and they did it by having well-maintained equipment in proper balance with their workload, often selling at prices that made some competitors shudder (especially those with huge debt loads, the primary factor that causes businesses to come crashing down). The NAPL equipment cost data reflects what happens to hourly costs with various assumptions about productivity and number of shifts, and it's clear that overbuying equipment gives a shop no buffer to survive business downturns because a high utilization rate is essential to reducing a shop’s costs and delivering reasonable margins.

A critical part of the process in the purchase of new equipment is resisting the urge to keep the old equipment. As Mr. Carter said, and as has long been recommended in the business, there is also the option of replacing two presses with one. I have even heard of companies that replaced three with one! Even if equipment has been written off or fully depreciated, it still has an associated cost, whether it be maintenance - which is tangible - or training and opportunity cost, which are not. Depreciation schedules are more often related to tax policy, and little attention is paid to “marketable life” of equipment, which is more important than depreciable life according to a pre-set schedule. With changes in technology, it is questionable whether equipment bought as recently as 1997 and 1998 still has a marketable life. That’s not because the equipment doesn’t work mechanically; it’s because what it produces may no longer be marketable. While the actual quality of the printed piece may still be more than adequate, older, less automated equipment can frequently cost more to operate and often cannot profitably deliver the shorter turn times and run lengths required by today’s buyers.

The printing industry, like most nondurable manufacturing businesses, has had a lot of difficulty incorporating productivity improvements into its economic structure. It's hard to do that in "job shop" environments, but that's all the more reason to have as little equipment on the floor as possible and still maintain flexibility of operations. The ability to maintain the dynamic tension between those two needs is why managers earn the big bucks. New equipment can often be the answer to extending a shop’s “marketable life”.

I got a lot of negative feedback when I said this in back in 2001, but here I go again: There has never been a better time to buy new technology because the buyer has the upper hand in the negotiations at this time. Maybe we're seeing some signs that the buyers have finally realized that fact! If the capital equipment market starts to rebound in a big way, that position of power will diminish.


Back to top