This Just In
  • Detroit’s Cobo Center receives ASTM Venue Standard recertification, having first received certification in 2015.
  • Host to this year’s Sustainable Brands Conference, Cobo Center was the 9th facility in 2015 to receive ASTM Venue Standard certification.
  • Convention Data Services broke ground on its new corporate headquarters in mid-March. The approximate 30,000-sf building opens in Q1 2018.
  • The new digs are next to the current CDS HQ in Bourne, Mass. The construction will accommodate the company’s growth and create new jobs.
  • China’s Shenyang New World EXPO opened March 1, hosting 2 exhibitions in its first month of operation, with a third to be held 23-25 March.
  • To date, the largest event was a dental equipment and oral health exhibition, open 16-19 March, which drew more than 39,000 attendees.

Corporate Profits, Not Erratic Economic Performance, Will Influence 2014 Show Growth

Darlene Gudea
, President / Publisher
June 2, 2014

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Oceanside, CA – From GDP to interest rates to job creation, the economic recovery has yielded some rather puzzling outcomes in 2014 that warrant more explanation. This month, we will try to sort through these confounding signals for our readers.

The Bureau of Labor Statistics (BLS) reported 288,000 payroll jobs were added in April, the biggest spike since January 2012, according to the BLS Current Employment Statistics Survey (the “Establishment Survey”). Yet the labor force sank by 806,000 according to the BLS Current Population Survey (the “Household Survey”).

A similar occurrence happened last October, which some analysts tried to blame it partially on the one-week government shutdown. “However, the shutdown would have only accounted for 200,000 of the almost one million people who dropped out of the labor force,” said Frank Chow, chief economist for Trade Show Executive Media Group. “Both times, it was a huge drop in the number of re-entrants to the labor force instead of those leaving.” Chow pointed out that with most economic recoveries, the labor force increases, unlike the current recovery.

“You have drastically different messages offered by the BLS establishment and household surveys,” said Stephen Stanley, chief economist of Pierpont Securities. He called the conclusions puzzling. Economist Joe LaVorgna of Deutsche Bank believes many people stopped looking for work in the Spring — a legal stipulation for receiving benefits — once they realized Congress didn’t extend unemployment payments that expired on December 31. Others say it is a reversion to a long-time trend in which the labor-force participation rate continues to fall. “We saw a rise in the participation rate over the past few months that didn’t make sense,” said Bricklin Dwyer, a senior economist at BNP Paribas. Adding to the confusion, it has become more common to see large revisions to the initial jobs data (and other economic numbers) than earlier reported, often contradicting economic conclusions made earlier with flawed numbers.

Chow believes the extreme moves in April are most likely due to statistical noise. In any given month, the standard error for the Household Survey is plus or minus a high 300,000, the BLS says. Some economists suggest looking at other indicators such as the ratio of employment to the overall population. Nationally, this broad employment rate has held steady at 58.9% of the population, up only 0.3% over the past year. However, statistical noise occurs in many other government data such as the First Quarter real GDP growing a mere 0.1%. Falling business spending and exports contributed the most to the poor results, Chow said. Economists question whether the weak GDP was due to seasonal adjustments that didn’t accurately reflect the unusually severe weather. Many economists expect subsequent GDP revisions will show a decline.

“Truthfully, nobody knows for sure why the data has been so erratic this year, but there is a sense that the metho-dology used in government reports are outmoded and are increasingly unable to accurately reflect economic activity,” said Chow. The Internet has ignited all forms of transactions that are not being accounted for by the government: bartering sites, online job sharing, house sharing, crowd funding, car sharing, etc. Economists warn even the Consumer Price Index (CPI) inflation gauge is suspect. Over the years, many qualita-tive and substitution adjustments have been made that accounted for product improvements and how consumers shift to cheaper options when faced with rising prices. Some economists claim this serves to understate inflation and may have masked the housing bubble. These inflation changes have also had a significant impact on measuring real GDP. 

“In fact, most Americans can no longer relate to the economic reports,” said Chow. For example, a March NBC News/Wall Street Journal poll revealed 57% of Americans believe the U.S. is still in a recession despite being in a recovery since 2009. In December, an ABC/Washington Post poll showed an astounding 79% believed the U.S is in recession. “The obvious disconnect between government economic data and the perception by most Americans causes some economists, myself included, to delve deeper to discover possible reasons for such a dichotomy,” said Chow. Here are some potential explanations:

  • Income growth, mainly benefiting the upper income households. Everyone else is mostly worse off.
  • An economy undergoing unprecedented structural changes.
  • A Great Recession hangover still lingering in the form of deleveraging.
     

“We have discussed these issues plenty in previous columns,” said Chow. Basically, most households are not experiencing much wage or asset gains during this recovery and lack the skills needed to obtain a higher paying job. Roughly 13 million people are currently unemployed or looking for work. They are suffering from rising energy and food prices, which are much higher than the stated CPI level, but don’t make the headlines since the government focuses on core inflation, which eliminates volatile energy and food prices. Meanwhile, high income households, which are about 10% of the population, are capturing a great majority of asset and wage gains, and they benefit most from technology improvements.

Businesses and consumers are still deleveraging due to the Great Recession. But instead of reducing cost or debt, individuals are more prudent about large discretionary purchases, and baby boomers are saving more for retirement. Businesses are wary about hiring and investment as they still face great uncertainty and ever-increasing regulations. Both groups are anticipating significantly higher health care costs in the near future. 

The recent drop in interest rates may be due to investors’ lack of confidence in this economy and their shift to safer Treasury bonds instead of stocks. Home-builders have been feeling this way since February, Chow said. He noted the NAHB/Wells Fargo Housing Market Index, which tracks home builder confidence, declined to 45 in May — the lowest reading since May 2013. The index has been below 50 since February, indicating builders are pessimistic about sales trends. As for consumers, U.S. retail sales braked sharply in April after strong gains in the prior two months. The Commerce Department said retail sales edged up just 0.1%, held back by declines at furniture, electronic and appliance stores, restaurants and bars, and online retailers.

“Except in energy, health care, and technology corporations, most executives simply do not have the confidence to expand domestically to the degree of prior recoveries,” Chow pointed out. “Instead, we are seeing cash flowing into dividends, stock buybacks, mergers & acquisitions, and overseas markets.” According to Standard & Poor’s, about 1,700 U.S. non-bank companies held $1.5 trillion in cash offshore at the end of last year, nearly double since 2008.
“To bring that cash home, companies would have to pay a hefty U.S. tax bill,” Chow pointed out. As a result, a recent trend called inversion is gaining traction where an American company buys a foreign company and establishes a new “legal home” there. This practice allows the company to shield foreign income from U.S. taxes and develop internal lending arrangements that effectively frees up their offshore cash.

Implications for Show Organizers

Why should these issues concern trade show executives? “For one, you can no longer rely on a few government reports to truly understand how the fast-changing economy may impact your organization’s business,” Chow said. “Instead, you’ll need to stay on top the large array of public and private economic analysis, and also have a general understanding of the limitations of such data.” He emphasized that the exhibition industry is now more closely correlated to the profitability of companies and less so to the general economy or at least how the economy is being perceived by most people.

Chow believes the structural problems evident in the U.S. and globally will likely place a cap on how much the U.S. economy can grow in the next couple of years, but because of strong corporate balance sheets, population growth and overseas expansion, the economy will still continue to grow. Chow warned readers that there will be more volatility in the economy, but noted, “As long as trade shows continue to be integrated into the marketing and sales strategy of businesses, trade show performance should continue to thrive despite the erratic economic data that may arise in the coming months.”