“We devote our intelligences to anticipating what average opinion expects the average opinion to be”
John Maynard Keynes
The combination of a deep and prolonged recession and the threat of a global pandemic have taken their toll on the U.S. exhibition industry. For the first time in the 30 years we have been tracking the industry, after weathering recessions in the ’70s, 80s and 90s, double-digit unemployment and double-digit inflation, the CEIR Index reveals that industry performance has dropped below the line and is now reporting negative numbers.
Yes, it is true, 2008 and 2009 have not been kind to the exhibition business … or any other business for that matter … but that is not what the preceding paragraph is referring to … that paragraph was written about the fourth quarter of 2001! The pandemic fear was SARS not H1N1, and we have not experienced the horrendous events of September 11, 2001, but other than that the similarities are real … even though the reasons are not the same.
You see, most people have forgotten that the U.S. slipped into a recession in March of 2001. In fact by August of 2001, some 77 percent of American business had curtailed travel and airlines were preparing to reduce airlift. September 11 masked all of that and clouded our memories. The fourth quarter of 2001 was the first of six consecutive quarters of negative performance by the exhibition industry according to the CEIR Index. By the time the numbers turned around in the second quarter of 2003, the industry reported a 6 percent decline. Will history repeat itself? We should be so lucky!
The third quarter of 2009 will mark the sixth consecutive quarter of CEIR Index negative growth numbers. No one expects a color change in the fourth quarter. In fact, there is little agreement among those closest to the situation as to when we might move back into the black. And three negative quarters during 2008 netted a 3.1 percent decline for the year … half of the 2001/2003 bottom.
Downturns and recessions can be the result of negative forecasting with the resulting downturn a self-fulfilling prophecy. But more often, one or more industries lead the decline. Regardless of how we get into negative territory, some industry must lead the way back to prosperity … and it usually is not the industry that led the decline. This time around could be an exception to that rule.
In 2001, for example, looking back we saw that the middle of the 1990s was an unrealistic growth period following a short recession. It was led by the Information Technology industry with the advent of the Internet and the “dot com” phenomenon that followed. Just as the “dot com” bubble burst, the massive Y2K investment began and that carried us to March of 2001.
But it was not IT that led the recovery … it was building and construction. And now the irony is the industry that led us out of the last recession led us into this one … admittedly not because of their own doing.
So the questions remain, how deep will it go, how long will it last and when will happy days be here again?
From the outset I will confess to being one of the world’s great optimists … I still believe Bruce Willis and Demi Moore will get back together again! Because of my professed eternal optimism, it pains me to write the rest of this column.
It is unlikely that we will see any real recovery in the overall exhibition business until 2012. And here is why.
Today we are driven by the false hope that a recovery has begun. American’s tend to have short memories and when life is disrupted, return to familiar ways quickly. For example, the spikes that occurred after the life-changing experience of 9/11 included increased church attendance and charitable giving and reduced travel. The first two were back to pre-9/11 levels in less than six months, as were most travel sectors.
But what we sense is a recovery, with the S&P 500 up 60 percent since March, cannot be sustained because it is not based on the proper platform.
After production cutbacks and workforce reductions, companies work off inventories. When those inventories are depleted, investment spending recovers as production resumes. People work more hours because of the reduced workforce and therefore make more money. This permits them to spend more and Voila! Happy days are here again.
But that is not what is happening today. Consumers are not using earnings to buy goods, they are paying down debt. Great you say, that means banks have more money to loan. Yes, they have more money, but no, they are not making more loans. They are simply increasing their tier one capital just like they did with the infamous stimulus package. In actual fact, commercial loans are contracting by 3 percent. Why? Probably because the banks know year three of a recession is when they take their biggest losses. And that will be in 2010.
There are scenarios that could prove me wrong and we should all hope for them to be right and me to be wrong. I would love nothing more than to apologize for being wrong instead of being right in this case.
As for what to watch, clearly the first indicator of real recovery will be the loosening of credit. Without credit businesses cannot survive, much less expand, and people cannot buy homes and cars. It is the foundation of a solid recovery.
Exhibitions mirror the industries they serve…always have and always will. Until industries begin to recover the events that serve them cannot.
As for keys to watch for the exhibition business, look for the return of real company earnings … not just smaller losses due mostly to cost reductions. And as for industries to watch, monitor the building and construction shows. Most happen in the first quarter of each year. They are predictive because they are the beginning of a food chain that leads to selling floor coverings, bathroom and kitchen fixtures, appliances, furniture and accessories and even landscaping. As far as 2010 is concerned, these shows are basically sold and the early reports are not encouraging. There could be some improvement in 2011, but probably not much. I just hope that nothing comes along to disturb a recovery in 2012.
The opening quote was written by John Maynard Keynes in 1936. In the absence of reliable models and indicators we turn to opinion and guesswork and we tend to believe the crowd. The crowd thinks the recovery is real. Let’s hope this time the crowd is right.
