Why Trade Shows Just
Might Buck Economic Trends
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We are now halfway through the fourth year of an anemic recovery from the Great Recession, so it is natural to wonder, will 2013 continue to disappoint or will it be a breakout year? “On the surface, the First Quarter will be a tantalizing one, if as anticipated, a compromise deal on the fiscal cliff is reached in Washington, DC,” said Frank Chow, chief economist for Trade Show Executive Media Group. “Euphoria will kick in, and corporations may start to loosen their rather prodigious purse strings, causing jobs and GDP to escalate in the first half of the year.”
But in the Spring, Chow said something disruptive may occur as it did in the prior two years. For 2013, there is no lack of possibilities for such an event: escalation of war in the Middle East, a collapse of the euro, North Korean military aggression, Pakistan’s nuclear warheads falling into hands of terrorists, weather-related disasters in the U.S., and so on.
Reality Will Eventually Sink In
Even in the absence of a world-shattering event, Chow pointed out that an estimated 28 million additional American households will learn they owe more taxes on their 2012 income because a greater number of households are now subject to the Alternative Minimum Tax (AMT). Without corrective legislation, the AMT increase will surprise an unsuspecting middle class during tax return time. Moreover, the middle class will be saddled with Obamacare’s higher medical itemized deduction threshold of 10% instead of the current 7.5% and the new annual cap for Flexible Spending Accounts. These tax increases have not been covered by the mainstream media, Chow pointed out.
“Eventually, the realization will hit that a fiscal cliff resolution is probably not going to rescue the anemic economy and that nothing fundamental has really changed: no entitlement or tax reforms, insufficient infrastructures, inferior education system, elected leaders playing politics instead of governing, more burdensome regulations and lawsuits, more quantitative easing, and bigger government,” Chow said. “Jobs and consumer spending may pull back in the Summer or Fall and the cycle will repeat itself when surprising housing growth teases us in the Fourth Quarter to believe the economy will finally take off,” he said. “In the end, it will be yet another year of volatility and very slow growth,” Chow believes. This is what happened last year, although we all hope it will be different this year. That may be wishful thinking.
Likewise, many economists are forecasting growth to be roughly the same as last year. U.S. real GDP growth has averaged 2.2% in the current economic recovery. This is about half the normal pace for U.S. recoveries. BNY Mellon’s Chief Economist, Richard Hoey, expects a similar outcome for 2013, but with U.S. real GDP growth likely to be weaker in the first half and stronger in the second half. He believes a deal will knock off 1% to 1.5% in GDP, which is still much better than the projected 5% if the economy falls off the fiscal cliff entirely. The Fed modestly lowered GDP forecasts for 2012 to below 2%, but expects growth to improve slightly in 2013 to between 2.5% and 3%.
A Safety Net?
The Federal Reserve (Fed) has put an indefinite safety net under the economy: the Fed plans to add $45 billion in Treasury-note purchases (QE4) to its current $40 billion-a-month purchases of mortgage-backed bonds to keep rates near zero. However, this new policy is being tied to the unemployment rate remaining above 6.5% and inflation not rising above 2.5%. “This link to unemployment is a surprising change in policy,” Chow pointed out. “The Federal Reserve doesn't expect to reach its just-established unemployment threshold of 6.5% for hiking interest rates until 2015.” In November, the unemployment rate improved to 7.7%, but Fed Chief Bernanke attributed much of the improvement to a drop in the labor force. This action provides evidence that the Fed views the economy as still very fragile, Chow said.
Which Trade Shows Will Shine?
In general, don’t expect a breakout year unless you are expanding internationally or have trade shows in the housing or construction sector. Because of the various tax increases set for 2013, not including the elimination of the Bush tax cuts, trade show attendance by small businesses may drop marginally. Participation by large companies should be fine as they are usually less cash-flow constricted than small businesses.
The continued slow growth implies there will not be a rising tide to lift all boats. Sector-specific factors, rather than the economy, are more likely to determine show performance. As long as the government doesn’t go off the fiscal cliff, the trade show industry can expect continued overall growth albeit sluggish.
Of course, there are a number of factors beside the fiscal cliff or a natural disaster that may cause this outlook to deviate. Here is a list of issues to pay closer attention to as the year progresses:
- Will the eurozone head toward more financial integration? The recent plan by European Central Bank President Mario Draghi reduced the risk of the eurozone splintering, but did not solve many underlying problems.
- How will China’s new leadership deal with the U.S. on trade issues and the expansion of foreign investment into its country? China’s GDP growth has decelerated, but global growth is dependent on China’s ability to navigate a soft landing.
- Will housing continue the upward trend started in 2012? Despite decreased filings nationally, foreclosure activity increased in 23 states. In fact, nine states had 12-month highs in foreclosure activity in November.
- Can corporations maintain their profitability and revenues in the face of uncertainties from the fiscal cliff? Many economists believe multinational corporations will perform better than U.S domestic ones in 2013.
- Will consumers keep spending? Retail sales rose 0.3% in November after declining 0.3% in October. Sales were more than twice as strong if the big decline at gas stations is factored out. Still, the trend in retail sales can hardly be called strong. Retail spending has climbed 3.7% in the past 12 months, a pace consistent with the economy expanding about 2% a year.
- Are there more taxes on the horizon? 2012 may have been the last Christmas of tax-free online shopping. A proposed online sales tax has been offered as an amendment to the National Defense Authorization Act. The Marketplace Fairness Act seek to reinterpret a 1992 Supreme Court ruling that requires retailers to have a physical presence in a state in order to collect sales tax on goods.
- Can U.S. energy production join the housing market in lifting the economy out of its morass? The Energy Information Administration (EIA) released data showing the U.S. pumped 6.5 million barrels per day (bpd) in September, up from 5.6 million last year and the most since 1998. The latest Annual Energy Outlook predicts production will grow faster than consumption. By 2019, production will reach 7.5 million bpd.
Just because the outlook for 2013 and beyond is for continued slow growth, that doesn’t mean there are fewer opportunities for show managers, exhibitors, and trade shows in general. Opportunities could be more fertile because companies may not be able to cut costs further, but must be more competitive to survive. So, companies will be smarter about their marketing or trade show budgets and may even increase them. There are ample chances to increase international exposure because the economy of numerous countries will be significantly improving in 2013 — you just have to know which ones. Certain industries are receiving large subsidies from the federal government in order to promote exports — companies in this sector are expanding their budgets. Companies in the health care sector will be growing to meet the needs of aging baby boomers and the full implementation of Obamacare in 2014. These are just a few examples. We hope we can contribute to the knowledge needed to take advantage of opportunities in 2013.
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