"We are at a critical stage of the business cycle. The economy can go either way from here. It all depends on how the labor markets hold up and if consumer spending can continue to keep us out of a recession," comments Andrew D. Paparozzi, chief economist with the National Assn. For Printing Leadership (NAPL) Printing Economic Research Center.
Speaking at the recent Research & Engineering Council Critical Trends Conference in Baltimore, Paparozzi maintains that the economy has done well in spite of recent pressures, including Fed interest rate hikes, energy price increases and the crash of the NASDAQ. Whether or not the economy can avoid recession will depend largely on how employment holds up.
Change in labor markets shows up initially in hours worked, explains the NAPL economist. "Last spring hours worked was growing at 2.7 percent. By August, growth had slowed to less than 2 percent. And in March of 2001, hours worked grew just 0.3 percent."
Eventually a change in labor market conditions shows up in official head counts. Employment declined by 86,000 in March—the largest monthly decline since the economy was pulling out of the 1990-1991 recession.
What is more troublesome, perhaps, until recently job loss has been limited mainly to manufacturing, according to Paparozzi. But now the weakness is spreading to retailers and wholesalers. And the service sector, covering consulting companies to temporary help agencies, has slowed hiring dramatically. Service employment increased by only 11,000 in March, down from 29,000 in February and 120,000 in January.
The Blue Chip Economic Indicators expect GDP to grow only 1.8 percent this year. GDP grew 5.0 percent in 2001, and hasn’t grown less than 2.0 percent since 1991. "Growth will pick up late this year," according to Paparozzi. The consensus is predicting GDP to reach 2.6 percent by next spring and 3.5 percent by fall of 2002. "That’s very respectable, but it’s still well below the robust 4.5 percent average annual growth the economy turned in from 1997-2000," according to Paparozzi.
What’s ahead for the economy—and for print—depends largely on three questions no one can answer with certainty, says the NAPL economist. How much help will the economy get from the Fed and the Treasury? When will the help get here? How effective will the help be once it does get here?
"The Fed and Uncle Sam are coming to the economy’s aid. But lower interest rates and tax cuts don’t work overnight," concludes Paparozzi. NAPL estimates a 50 percent probability of print growth of 3.0 percent in 2001, increasing to 4.5 percent in 2002.
However, there is also a 25 percent possibility that growth in 2001 will only be in the 2.0 percent range, with 2002 improving to 3.1 percent.
Whatever the final outcome, Paparozzi advises keeping an eye on labor markets and consumer spending to anticipate the vitality of the economic recovery—or the possibility of recession—in the months to come.