Riding the Recession Rollercoaster

What goes up, must come down—so the saying goes. This could be used to describe the business climate during 2008 in any number of ways. For the label and packaging market, both the going up and the coming down have had significant negative effects.

Corey Reardon, president and CEO of AWA Alexander Watson Associates, McLean, Va., noted that the first half of last year was clearly identified with steadily increasing raw material prices, driven by unprecedented increases in oil and energy costs, with record high oil prices by mid-2008.

"During the second half of 2008, the reverse was true," he said. "Oil prices fell, and raw material prices stabilized and began to fall. Most significantly, during the second half of 2008, the impact of the economic crisis affected market growth dramatically. A softening and almost static third quarter was succeeded by rapid and unprecedented declines in market demand in the fourth quarter, and into 2009."

Frank Gerace, president and CEO of Sharonville, Ohio-based Multi-Color Corporation, had a similar observation. "Market conditions were stable through the third quarter of 2008; however, there was significant demand erosion during the fourth quarter as concern about the economic downturn led to customers ordering less to lower their inventories," he witnessed.

The label and packaging market has been described over the years as being recession-proof. This current recession is testing that theory.

James Hammer, president and CEO of Rochester, New York-based Hammer Packaging, said it clearly. "There is no industry that is recession-proof. Some are impacted less than others, but all industries suffer when reinvestment slows or stops altogether." While he believes the label market has remained relatively stable, "the competitive nature of the industry has become more intense than prior to the present economic situation," he noted.

Gross domestic product (GDP) is often used as a reference point for making predictions for the packaging market. Looking at recent GDP data would substantiate the potential negative impact on the label market. According to estimates from the U.S. Department of Commerce, GDP fell at an annualized rate of 6.1 percent during the first quarter of 2009.