There are dozens of economic indicators that printing businesses can use to determine the overall health of both their industry as well as that of the Australian economy. It is not unusual for some of these economic indicators to provide conflicting assessments and outcomes of prevailing economic conditions. For example the latest cut to official interest rates by the Reserve Bank of Australia (RBA) was primarily motivated by a policy desire to prevent the Australian Dollar from appreciating further. While normally the Australian Dollar should have either stabilised or even depreciated following an interest rate cut, the opposite occurred in the weeks after the cut as the Australian Dollar continued to strengthen and appreciate due to other factors at play such as a weakening American Dollar underpinned by weaker reported economic conditions in the United States.

With the Australian economy now an integral part of the global economy domestic policy settings are increasingly influenced by overseas economic factors and developments. This makes the task of domestic macro-economic management increasingly challenging for policy makers as they have no direct influence over external factors and highlights the importance as well as the necessity for coordinated economic policy initiatives across national boundaries such as the fiscal stimulus packages, record low interest rates and quantitative easing and financial sector reforms that were undertaken both during and post Global Financial Crisis period.

While the debate lingers on as to the effectiveness of some of these policy measures, there is no doubt global economic problems necessitate global coordination and response. Even when economic policy is coordinated at a global level by national governments, the economic challenges continue to remain as reflected by the contemporary phenomena of low rates of economic growth and inflation (deflation in some regions). 

This column will be outlining and discussing the economic indicators that are directly relevant to the economic prosperity of the printing industry. Printing participants that pay increased attention to these economic indicators are likely to be better positioned to understand, assess and respond to the evolving and emerging economic dynamics and the likely impacts on both their businesses and the wider industry they operate in.

Economic Growth

Australia has experienced uninterrupted economic growth for more than a quarter of a century. An economy that is growing and expanding offers printing participants ongoing business opportunities. Whilst it is true that due to technological changes such as the emergence of disruptive technologies such as digital media platforms the correlation between Australian economic growth and printing industry economic growth has weakened in recent times, an expanding Australian economy still remains a positive development for the printing industry.

With the Australian economy growing at a trend rate of 3.2 per cent the growth rate remains on track to reach its long term potential if current trends continue. Despite growth picking up pace at the national level at the printing industry level the situation is contrastly different with the industry remaining in recession following the fifth consecutive quarter reported contraction in industry gross value added.    

Inflation

The inflation tiger has been tamed both domestically and globally. Domestically both headline inflation and underlying inflation which influences monetary policy settings remain well within the RBA target band. Annual inflation rate in the tradables sector – the sector that sees prices determined largely on the global market is close to zero while the non-tradables sector has an annual inflation rate of just 1.6 per cent. Inflation remains an important indicator for printing businesses that need to make annual adjustments to their supply contracts and there is no doubt subdued inflation is an overall positive for an industry that has become a price taker.

One area of inflation with ongoing consequences for printing businesses is wages inflation. Labour costs remain a major cost component for printing businesses and the recent period of wage moderation should be assisting printing businesses manage their overall cost structures. The chart on the opposite page depicts the change in the Wage Price Index over the past decade. What becomes quickly evident is that across all sectors wage growth remains clearly subdued. This development will have implications on the printing industry as wage growth is a key driver of consumer demand and any prolonged period of wage restraint could negatively impact consumer demand feeding through sectors such as retail trade which remains an important generator of demand for the products and services produced by the printing industry.  

The movement in the wage price index thus provides both economic positives and negatives for the printing industry. Whether the overall impact is positive, negative or neutral depends on the overall economic impact of these factors on the industry.

Labour Market

In the labour market area employment growth is an important economic indicator as increased employment implies increased potential for household spending and economic activity. Key industries that have increased employment in recent years include construction, wholesale and retail trade, household services, public administration and business services. Mining and manufacturing continue to shed workers. 

The unemployment rate is the most popular economic measure of the overall state of the labour market. Latest data confirms that the unemployment rate during July 2016 remained unchanged in trend terms at 5.7 per cent with no change also reported in the participation rate.

Printing participants are unlikely to be facing serious labour shortages given ongoing industry consolidation efforts continues to free up workers to be employed by other participants in the industry. The Australian economy is not even near full employment levels to make attracting workers to the printing industry a challenging task. Instead, negative perceptions about the printing industry amongst school leavers, the younger generation and policy makers in general are likely to prove more of an obstacle to attracting people to the industry.    

Household Sector

Key economic indicators for printing participants from this sector include retail sales and consumer sentiment. Retail sales help generate demand opportunities for the printing industry through marketing and advertising sales and campaigns. A healthy retail sector ensures ongoing opportunities for printing participants provided they are able to satisfy the evolving marketing requirements of the sector. While retail sales have registered positive monthly growth on trend basis since November 2012, the growth rate is not only showing a distinct moderating nature but it also has remained flat during the past six months as shown by the above chart. 

Retail sales and consumer spending are influenced by consumer sentiment. For this reason movements in consumer sentiment indicators are critical to the printing industry. Confident consumers have a greater propensity to spend and purchase goods and services including non-essential items or what are often called discretionary expenditure items. Improving consumer sentiment in turn helps generate economic benefits for the printing industry. The Westpac-Melbourne Institute Consumer Sentiment Index a leading measure of consumer confidence rose two per cent in August to reach a reading of 101. Despite the welcome rise the index remains slightly below its long term average and well below its registered peak of January 2005. Any index reading above 100 implies the proportion of optimists outweigh the proportion of pessimists.

Advertising Expenditure

Another useful printing industry indicator is the breakdown and growth of advertising expenditure. The amount of advertising expenditure that is allocated to traditional and non-traditional marketing mediums such as television, radio, newspapers, magazines, outdoor (traditional and digital) and on-line has been shifting and changing towards on-line platforms and away from traditional media channels including printing.

Printing businesses that have adapted and evolved to offer services and solutions beyond the traditional printed product will have a greater capacity to compete with the emerging media areas. Those that have failed to undertake the required industry shift are likely to continue experiencing declining market share.   

Other Economic Indicators

While the economic indicators outlined above influence and determine the economic prosperity of participants in the printing industry other indicators could also play a critical role for other printing businesses depending on their individual circumstances. Movements in the Australian Dollar for instance would impact export and import competing printing businesses and produce wider industry impacts due to the cost impacts associated with imports of paper and other consumables as well as printing technology. 

Interest rates as an economic indicator would also have widespread impact on the industry but higher leveraged printing businesses would be impacted relatively more by interest rates movements. The RBA has reduced official interest rates to historical lows to help support domestic economic growth. As inflationary pressures continued to subside, the RBA shifted strategy from fighting inflation which was no longer an economic concern to strengthening and supporting domestic economic growth. The differential in actual interest rates charged to small and large printing businesses are also an important consideration for contemporary printing business operators.     

The household savings ratio is another economic indicator that should be closely monitored by printing industry participants. Increases in this indicator imply that household consumption growth which is a key driver of economic growth for the printing industry has started to weaken.  

Conclusion

Printing businesses remain integral players of the communication and information industry as their outputs are geared towards servicing these market segments. To be successful in business, printing business operators need to comprehend, process and decipher vast amounts of information and even more critically, be able to positively and strategically act on information that is directly relevant to their businesses to ensure ongoing business success.

We live in a world where there is just too much information, pardon the jargon we are experiencing information overflow, and for this reason it is crucial for businesses not only to be aware of the economic indicators but also to have the capacity to distinguish and isolate the key economic indicators that are crucial for their overall business prosperity. The ability to make this crucial distinction will help separate the successful businesses from the lesser successful ones in the information technology age. 

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