State of the Industry-Tags and Labels

THE BEST THING that could be said about 2002 is that our economy was in a recovery mode. The ongoing problem is that this recovery is not one that is exuding much business confidence. It seems like everyone is looking over their shoulder waiting for the shoe to drop. There is much uncertainty, what Dr. Joel Prakken, chairman of Macroeconomic Advisors, termed as "event uncertainty" at his presentation at TLMI's Annual Meeting in October. And it appears that this uncertainty won't go away anytime soon.

Prakken pointed out that this recovery will be different from typical recoveries that we've seen in the past, mainly because the recession was also different. The recession was not brought on by inflationary pressures; inflation has been well under control for a long time now. Also, throughout the recession, consumer spending was extraordinarily resilient, including major components such as housing and automobile purchases.

This good news also means that the recovery won't get its typical surge from renewed consumer spending, nor will it get boosts from interest rate drops that stimulate economic resurgence coming off high inflationary periods. As a matter of fact, Prakken says that the current low level of fund rates are unsustainable and he expects fund rates to be increased to what he terms a "neutral" rate of four to five percent throughout 2003.

If 2002 was in a general recovery mode, the weakness of it could be seen by tag and label converters. Art Bowers, VP of sales and marketing for label converter Advanced Web Technologies, saw continued softer demand, coupled with a slight increase in industry capacity. "Basically, what you have is the same number of presses chasing less business."

Bowers remembers an economist saying several years ago that the packaging industry generally leads the rest of the economy by about six months. "If this is true, I'm not sure that a firm turnaround has begun yet," he states.