During my college years, the one area I did miserably in was economics. My major was American government, and being a depression-era baby I thought studying economics would be a good idea. It was an elective for my degree.
I do not want to go into why I could not get it right and my grades reflected that. I should have saved the papers we were asked to write in which my professors said, “Not Good!” From then on, while I had my own opinions about the economy, I kept them to myself.
Fast forward to the first copy of our report in January 1982. While I wrote about how the Japanese government supported business it was more about attempting to broaden dealers’ understanding of how different the Japanese culture was than ours and why. If you would like a copy of the first report, E-mail me at frank@cannatareport.com and I will be happy to send it to you.
I can no longer resist and must express my feelings about the current economic situation. I went online to read the latest economic announcements. I started with Bankrate.com, an investment management consulting organization.
The Federal Reserve announced following its Jan. 31-Feb. 1 meeting, raising interest rates by 0.25 percentage points, bumping the federal funds rate to a target range of 4.5 to 4.75 percent. With the move, the Federal Reserve marked the eighth meeting that raised rates to rapidly reduce liquidity to the financial markets and tamp down high inflation.
“While inflation pressures have started easing, the Fed’s work isn’t done,” wrote Greg McBride, CFA, Bankrate chief financial analyst, “Interest rates are moving higher and may stay longer than is generally believed.”
The market reacted negatively because of the fear of further increased interest rates by the Fed. The consensus is that the Fed will raise rates at least twice more. We agree. At 11:45 a.m., February 3, CNN’s Paul R. Lamonica reported:
The US job market blew past expectations, adding an astonishing 517,000 jobs in January. America’s unemployment rate fell to 3.4% in January, the lowest since before the 1969 moon landing.
The Federal Reserve has been trying to slow down the economy to combat inflation. Although it has been successful recently, the labor shortage has kept hiring demand high and jobs in abundance despite a slew of recent layoffs, particularly in the tech sector.
US stocks were mostly lower Friday February 3rd as Wall Street feared a still-hot economy could give the Fed more room to hike rates. I also learned earlier that the GDP increased by 2.9% in the fourth quarter. The good news is brushed aside no matter how positive it is. In my continuing search for updates on financial news, I discovered the website, Searchley.com, which presents information from multiple sources.
The annual inflation rate for the United States is 6.5% for the 12 months ended December 2022 after rising 7.1%, according to U.S. Labor Department data published Jan. 12. The next inflation update is scheduled for release on Feb. 14, 2023, at 8:30 a.m. ET.
I thought it would be a good idea and see how far inflation rates have gone down. I discovered the following chart, which showed inflation rates from 2020:
Year Jan. Feb. March April May June July Aug. Sept. Oct.
2022 7.480% 7.871% 8.542% 8.259% 8.582% 9.060% 8.525% 8.263% 8.202% 7.745%
2021 1.400% 1.676% 2.620% 4.160% 4.993% 5.391% 5.365% 5.251% 5.390% 6.222%
2020 2.487% 2.335% 1.539% 0.329% 0.118% 0.646% 0.986% 1.310% 1.371% 1.182%
As you can see, inflation increased until June 2022 to 9.06%. The January result shows a drop of 2.6% over a six-month period. So, let us not argue with the Fed about doing what they believe they must do to keep us out of a highly destructive inflationary spiral.
I wanted to do one more search on unemployment. This is from the Bureau of Labor Statistics, United States Department of Labor via Data Commons.
Unemployment rate Total unemployed people Unemployment insurance claims
3.4% 5.7 million 2.1 million
Updated, January 2023
Martin J. Walsh, the head of the Department of Labor, was asked about the impact on the unemployment rate of the large layoffs in the high-tech industry. I loved his answer. “Most of the people already have new jobs.”
That was not a well-thought-out question. Can you imagine how happy those smaller tech companies that have been losing out on hiring top talent to the large tech companies are? They must be ecstatic. There are no statistics available on that. We have a few clients that would love to hire some of these people.
What is my point? It is simple. The impact on our industry of inflation will be minor, at best. One reason is you have the machines predominantly sold on long-term leases. The downturn in sales during the pandemic will be felt this year and in 2024 when we anticipate the renewal of the lower sales level during the pandemic.
As a balance to that, we have increased sales from pent-up demand from companies saying no can do in 2020-2022. We experienced that and understood it perfectly.
We are cognizant of the reports of the real estate market taking a hit on home sales. There is a lot that goes with that. However, it will not impact the demand for skilled construction workers. More about that later. Home furnishings will certainly feel some of that loss with fewer home sales. Is that one of the market sectors that dealers rely on?
There was a saying that was used quite extensively used during the turn of the century. “This industry is recession proof.”
In the 1980s, interest rates hit 20%. The doom and gloom crowd said dealers could not survive that. Some of you old guys younger than me may remember that. There was fear that the Fed would push us into a recession and take the whole economy down. That did not happen.
We believe in the viability of the independent dealer channel to deal very efficiently with the current situation and the usual suspects will do quite well. As for the others, this will be a period of low growth and you could take that to the bank. The big question mark is the Chinese, who made it clear to the Japanese manufacturers that if they want their machines built in China, the entire product must be made there.
No Japanese manufacturer will allow that to happen. They have already spread the manufacturing of MFPs to Vietnam, the Philippines, and other Pacific Rim countries.
The supply chain problems will continue to cause some glitches but not to the extent of the prior three years. This year will see much catching up and that is one of our biggest concerns.
The pent-up demand I spoke of earlier will be a thing of the past in 2023. I noted that the GDP increased almost 3% in the last quarter of 2022. Come April, we will see just how good or bad the increased interest rates have damaged the economy.
The rebuilding of our infrastructure and spreading access to our internet all over the country will create a domestic manufacturing industry for semiconductors which will infuse hundreds of millions of dollars into our economy. All of that began in January. Comments about recessions seem to minimize that point.
More importantly, it will be a suitable time to read the financial statements of the Japanese manufacturers when their fiscal years end on March 31. We predict at least two of them will show poor results.
As for consolidation, it is readily apparent that there is overcapacity in MFP production. The lessening demand will negatively impact at least two manufacturers. How they deal with it will depend on how effectively they can diversify their respective businesses. Nobody that is currently supplying MFPs to dealers is going out of business.
As for office technology dealers, we will continue to see the independent dealer channel revenue increase 5% in 2023 with the top 60 companies producing 55% of all revenue. For the rest of the dealers (we estimate that 370-390 will respond to our upcoming Annual Dealer Survey), their average revenue will be $10 million.
We urge every dealer to take our Survey whether they receive an incentive of a free subscription or not. The Survey results were never more important than our 38th Annual Dealer Survey. The results will go a long way towards either proving our point or, at the very least, modifying our position. It is your future we are addressing, not ours.
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