While several prominent economists have been quoted as predicting a third-quarter rebound for the economy and a V-shaped recovery (meaning a sharp down followed by a sharp up), Andrew Paparozzi, chief economist of SGIA, doesn’t see this happening and thinks print shops should prepare now for a later recovery.
“Their consensus forecast is primarily the record stimulus the Fed and Washington are pouring into the economy and all the pent-up demand the shelter-in-place has created,” said Paparozzi. “I have to tell you that I instead see a U-shaped recovery where we bounce along the bottom for a while. I don’t know for how long—and really no one does—before we get that sharp leg up.”
Speaking at an SGIA Ask the Experts Webinar in early May (“Creating a Path Forward”), Paparozzi reported on findings from a twice-weekly research survey of 500-plus participants in the print industry tracking trends in sales, production, employment, prices, and profitability. He found that, while the bottom dropped out in mid-March with declining sales and work orders, he has yet to find any sign of the absolute bottom, which means he cannot identify a sign of an upturn at this moment because of this.
A lot of problems, he reported from respondent comments, are that many companies have worked through all their backlogs. Another culprit mentioned is that, while shops may have been designated essential, many of their clients were not. Although many print shop owners may be doing a lot of quoting, they are finding projects on hold for now. And while many have pivoted to the manufacture of personal protection equipment (PPE), Paparozzi says that some shops are wondering what happens when that type of work is done.
While markets like schools, retail, and hospitality have been crushed by the pandemic, Paparozzi said print providers need to turn their attentions to the industries that have grown through the crisis—pharmaceuticals, health care, home entertainment, home fitness, etc.
In Paparozzi’s opinion, the best-case scenario is that the economic contractions slow in the Third Quarter and the upturn gradually begins, at earliest, in the Fourth Quarter of this year before really strengthening sometime in 2021.
Keep in mind that this is no ordinary economic upheaval that anyone has seen before, making forecasting somewhat tricky. Paparozzi pointed out that the causes of this recession were biological and not economic, and he said that the solution to it will ultimately be biological. “Follow progress medical and pharmaceutical researchers are making in developing vaccines and effective treatments,” he said. “When we have that, the whole game changes.”
However Paparozzi did mention that print providers need to aware that, even as the economy reopens, social distancing in malls, restaurants, theaters, resorts, conventions, hotels, and airplanes will still be in place. “All these vital industries are going to have to legally operate well below capacity for quite a while,” he said. “How quickly will people return to pre-pandemic behaviors? How comfortable will we be going out to restaurants, malls, theaters, and hotels again?
“To forecast a V-shaped recovery, you basically have to believe that we’re going right back to the way we used to behave on March 1 before the pandemic—and I find that hard to believe.”
Paparozzi worried about the amount of typical businesses that are customers for print would be able to survive this pandemic and how long it would take the surviving outfits to get back to something even close to normal operations. He also predicted lawsuits in the future from customers and employers over whether businesses took the appropriate safety precautions. “We do like to sue each other,” he said, “and this is not going to promote economic recovery.”
However Paparozzi said he has no doubt a strong recovery will take place—instead pinning it sometime in 2021 with the monetary and fiscal stimulus kicking in and the pent-up demand caused by shelter-in-place.
He went on to say that the actions that shop owners take right now to prepare themselves to get through and weather the crisis and participate in the recovery on the other side—whether it ends up being V-shaped or U-shaped—are very important. “Knowing what’s happening now and likely ahead is helpful,” said Paparozzi. “The difference maker is knowing what to do about it.”
The first step to take is protecting the health of your employees and their families. OSHA has released safety points to help with the cleanliness of your shop.
Other ideas Paparozzi presented included: cost control and protecting cash flow, judiciously reducing salaries and hours, discontinuing contributions to 401K, minimizing non-essential costs, and pursuing all sources of aid public and private (PPP, SBA Economic Injury Loans, Google and Facebook grants, etc.).
Paparozzi stressed to always keep in touch with your employees, even those you may have let go during this crisis. “We need our best employees back if we are going to participate in the recovery,” he said. “If you do have to lay off your best employees, your objective immediately becomes insuring that the separation does not become permanent.”
While businesses that were deemed non-essential will be allowed to operate again, Paparozzi cautioned that getting these businesses back up to speed is going to take a lot more than just flipping the sign on the front door from “Closed” to “Open.” “It’s going to take convincing clients, prospects, and employees that the facilities are safe and sanitary and ensuring that everyone who enters them follows appropriate health guidelines,” he said. “Begin thinking about helping your clients rebuild.”
Fortunately Paparozzi said this is going to take a lot of print—signs, posters, graphics, direct mail, etc.—not just to announce that they’re open for business but that it is safe to be in their facilities again. “And all of that print will have to be updated as the rules change,” he said. “I think this is a tremendous opportunity for us. Develop communications programs that position you as the expert who can help them get their clients back in the door.”