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  • 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.

Early Warning Signs of Possible Slowing of Trade Show Growth in the Next Year

Darlene Gudea
, Publisher
September 1, 2015

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Oceanside, CA - In September, all eyes will be on the Federal Reserve (Fed) when it decides whether to raise interest rates or not. It would be the first hike since 2006 before the Great Recession. After seven years of near zero rates, such a decision could usher in a new era of higher interest rates on mortgages, auto loans, business and consumer borrowing. After the July payroll report showed the creation of 215,000 jobs, which was the third consecutive month with over 200,000 new jobs, most economists predicted the Fed will indeed increase interest rates in September. Whether this happens in September or the succeeding months, this is a good time to consider the impact on the economy and ultimately the trade show industry.

Frank Chow, chief economist for Trade Show Executive Media Group, noted that an interest rate hike would happen against a backdrop of falling oil prices, a growing jobs market, a rising dollar, and a fragile global economy. Predictions have ranged from “nothing will happen” to “the sky will fall.” However, the discussion should not only be about when will the Fed raise rates, said Chow, but why has the Fed taken so long? Readers of this column already know the major reasons:

  • Millions are still out of the labor force.
  • Wages have barely kept up with persistently low inflation.
  • Deleveraging caused by Great Recession continues.
  • Consumer spending remains erratic.
  • The global economy has gotten weaker.
     

The Fed set rates near zero in 2008 during the financial crisis and hasn't budged since. “A rate hike would be the biggest vote of confidence that the economy has recovered,” said Chow. The two key factors the Fed will be watching are the labor market and inflation. "The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective," the Fed wrote in July. 

Wage growth has been one of Fed Chair Janet Yellen’s top concerns — up only 2% this year, much slower than the 3.5% Fed target, said Chow. The Payroll Jobs Growth report has been solid and the Job Openings report has been trending consistently higher since January, though it was slightly weaker in June. “However, the jobs strength and low 5.3% unemployment rate are not pressuring wages up,” Chow pointed out.

So what’s holding wages back? Some analysts believe companies are paying for significantly higher healthcare insurance costs instead of raises. Economists point out the lack of productivity growth in recent years — Yellen describes it as “disappointingly weak.” Another explanation is the labor force participation rate, which is at a four-decade low of 62.6%, Chow noted. As jobs opening have increased, millions of workers who left the labor force or were forced to work part-time have supplied employers with plenty of applicants willing to work for low wages.

Another factor often cited is the lack of new businesses. Research reveals that new businesses are key to growth in employment, innovation and productivity for the nation. According to the Kauffman Foundation, new business formation dropped 30% from its 2006 peak to a low in 2010 and has shown just scant signs of recovering. New firms have accounted for 8.3% of all businesses during the recovery, the smallest share in decades. Other studies blame excessive regulations, especially the Dodd-Frank law, which makes starting a business too costly.

The second key Fed factor is inflation. Currently, core CPI-based annual inflation as of June (excludes energy and food) is 1.8% — below the Fed’s 2% target. Annual inflation has been trending down all year, a trend that started in 2011. The Fed’s preferred inflation measure, the core personal consumption expenditure price index, has also been declining. June came in at a disappointing 1.3% year-over-year. Most analysts credit the strong U.S. dollar and falling oil prices for keeping inflation so low. Conclusion: With rising consumer demand almost non-existent so far, I don’t see core inflation reaching the 2% Fed target, Chow said.

In August, China made the Fed’s decision more difficult by unlinking its currency from the dollar. China’s action will cause import prices to decline for countries that trade with it, while their export prices will rise. U.S. consumers will benefit, but U.S. companies that export will face more competition, Chow pointed out. But the wild rhetoric about China manipulating a “currency war” to halt its plunging economy is misleading and misses the big picture.

China has been vocal about the importance of being included in the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) basket of currencies, which is reviewed every five years and is next scheduled for the end of 2015. Inclusion will not happen unless China’s currency becomes market driven. In the past two years, the renminbi appreciated with the dollar after the Fed ended QE to a level where China was at a disadvantage with its trading partners. Recently, Europe had undertaken a steep devaluation of the euro.  So, when China cut its peg to the dollar and allowed it to free float to equilibrium, it gave a temporary boost to its export industry, Chow noted,  but eventually its currency will fluctuate. The SDR is an alternative to the dollar as the world’s reserve currency.

In conclusion, I don’t believe the Fed will reach either targets: inflation expectations may soon nosedive from China’s currency devaluation and the jobs market seems to be slowing. Atlanta Fed is now forecasting a 0.7% Q3 GDP growth. Let’s face it: all the money printing in the world has led to nothing more than tepid economic growth, Chow pointed out. “In the U.S., it’s also resulting in a burgeoning wealth inequality through the markets,” said Chow. Despite this, economists say there is enough strength in the labor market to warrant a rate hike but Chow said he would be surprised if it happens in September.

For the exhibition industry and companies in general, higher rates will increase capital/acquisition costs. Higher capital costs may translate to rising transportation prices. However, tumbling oil prices could offset most, if not all of these higher costs. If the Fed follows a path of gradual and very shallow rate increases, the economy may become more balanced and consumers will gain more savings. “A bigger concern for trade shows in 2016 is corporate profits,” said Chow. “Growth in corporate profits has been receding in 2015 and business investment is slowing,” said Chow. Trade Show Executive will keep an eye on this and will take a deeper look in a future column.