Post-COVID-19: The Economic State of the Industry

NAPCO Research and PRINTING United Alliance recently completed the first in a series of surveys to measure the effects of the COVID-19 recession on the printing industry. More than 500 companies participated. Eighty define their primary business as graphic and sign production.

What have those 80 experienced? And how are they protecting their companies from the crisis?

Figure 1: Data are for participants in the NAPCO/PRINTING United Alliance Print Business Indictors Research who identify their primary business as graphic and sign production.

As Figure 1 shows, the damage has been deep and widespread. Nearly 88% of graphic and sign producers surveyed report sales decreased between mid-March and mid-April, with 70% reporting a decline of at least 40%, and 26.3% a decline of at least 80%. On average, sales fell 52.3%. (We measured change from mid- March through mid-April to capture the full effects of the crisis. Economically, 2020 got off to a good start. It wasn’t until mid-March that the bottom dropped out.)

Work-on-hand is trending down for 86.1%, and quote activity is trending down for 83.5%. Backlogs built early in 2020 have been worked off, creating concern about what’s ahead: 58.2% of our graphic-and-sign panel expect business to remain at current depressed levels (25.3%) or to decline further (32.9%) during the coming months; just 15.2% expect business to improve, and 26.6% say business is so erratic they don’t know what to expect (see Figure 2).

We heard about “projects being pushed to later dates or frozen by clients;” invoicing delayed because “we are unable to install much of the graphics we are producing;” turning work away because “employees make more money on unemployment than working, so 50% took a leave;” and many other difficulties created by the pandemic and accompanying lockdown.

Figure 2: How participants in the NAPCO/PRINTING United Alliance Print Business Indictors Research who identify their primary business as graphic and sign production responded to the following: In relation to current conditions, do you expect business conditions for your company to improve, stay the same, or decline over the next month?

Nearly 75% have responded by reducing production payroll hours, and 49.4% by reducing employment. So far, however, 70.2% have held prices steady. Companies reducing prices cite reasons such as “offering discounts to essential industries,” and “offering discounts to try to encourage clients to start jobs.”

Of course, an individual company’s performance depends on the markets it serves. Some graphic and sign producers have pivoted to health-related work. For one, “expanded COVID-19 response kits, special zone distancing shields, and PPE equipment have allowed us to continue our operations as well as increase sales and profitability.” And for another, “orders have been mostly for COVID-19 related products: safe distance, open for drive-through, etc.” The off set is not always complete: “We have added some COVID-related work, but not enough to replace what was lost.” Companies providing non-health related products to schools, retail, events, trade shows, construction, and a host of industries designated as nonessential use words such as “huge,” “devastating,” and “drastic” to describe the impact of the crisis.

Not All Bad News

The bright spot is the actions many of the graphic and sign producers we surveyed are taking to power through to recovery. Protecting employee health is priority No. 1. he extensive efforts include strict enforcement of social distancing and all federal, state, and local health guidelines; rotating schedules so shifts do not overlap; “sterilization practices multiple times per day;” providing personal protection equipment; checking employee temperatures; contactless pickup/delivery; and “no outsider meetings in person, non-employees prohibited on premise, except for the emergency personnel we serve.”

They are rigorously controlling costs and protecting cash flow, with many applying for Paycheck Protection Program, SBA, and Main Street Lending Program loans. (Our second survey investigates their experiences.)

And they are playing offense as well as defense, expanding marketing, including social-media marketing, and e-commerce capabilities. Representative comments:

“We have been working on improvements to our marketing strategy (including e-commerce and social media) and keeping in contact with our customers via phone calls and email updates.”

“We have built a shopping cart function on our website for the first time to feature COVID-19-related products. We are continuing to implement several of our targeted industry strategies. And we’re moving forward with a new technology that we think will be important for our company.”

“We have added an online store for COVID-19 safety decals and signs, and have seen some additional sales through that by using social media to get the message out.”

When will the economy lend a hand? The consensus among economists surveyed by The Wall Street Journal is that meaningful recovery will begin by summer.

Specifically, GDP is expected to grow at annual rates of 9%, and 6.9% during the third and fourth quarters of 2020, respectively, after declining at an extraordinary 32.2% rate this quarter. Growth is expected to remain healthy through 2021, with GDP rising 5% for the full year. That would be the economy’s most rapid advance in 37 years, and more than double the 2.4% average annual gain during the past 25 years. This year GDP is expected to decline 6.6%, the steepest since 1946, and more than twice the 2.5% decline in 2009, at the depths of the Great Recession.

The case for a V-shaped recovery rests on unprecedented monetary and fiscal stimulus, and for pent-up demand for all the things we haven’t been able to do or purchase in months. We’d very likely be headed for one if the current recession, like previous recessions, were just about economics. But it isn’t. It is also about biology and the lingering effects of a global pandemic on human behavior. And it’s about the immense difference between lifting restrictions on commerce, and restoring the dynamics necessary to get the complex $24 trillion American economy back up to speed. Consider, for example:

Even as the lockdown is lifted, social distancing will force major industries such as hospitality, travel, entertainment, events, and retail to operate well below capacity. Moreover, some portion of the public will not return to their prepandemic behavior until a vaccine is developed. We can’t be sure it will be an economically insignificant portion.

Many businesses are not going to reopen; their losses have been too great. And for many that do reopen, margins will be pressured by limits on operating capacity and rising costs, including the cost of keeping facilities safe and sanitary for all on site.

• There will be costly litigation unless Congress passes legislation protecting businesses from frivolous COVID-19 lawsuits.
• There will be flare-ups of the virus because not everyone is going to follow even basic, common sense health guidelines.

All of that will weigh on the economy, increasing the likelihood of a recovery that follows a U shape with an elongated bottom rather than a V shape. There will be temporary bounces off the bottom during the second half of 2020. But a temporary bounce isn’t going to convince companies to ramp up capital investment, or consumers to boost spending on nonessentials. The sharp, sustainable upturn will come, but most likely not until 2021.

COVID-19 Print Business Indicators Research will carefully track how this all plays out for the printing industry. The research includes an index of current business indicators to capture when the recession has hit bottom, and an index of leading business indicators to capture when recovery has begun. Responses to open-ended questions put the numbers in context and get the facts about critical printing industry issues. Visit the NAPCO Media and PRINTING United Alliance websites regularly for research updates. Contact me at apaparozzi@sgia.org with your questions, comments, and suggestions. I’d be delighted to hear from you.