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Corey Reardon, president and CEO of AWA Alexander Watson Associates, noted that the first half of 2008 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 says. "Oil prices fell, and raw material prices stabilized and began to fall. Also, and 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 Q4, and into 2009."
Frank Gerace, president and CEO of Multi-Color Corp., 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 observed.
The packaging market has been described over the years as being recession-proof. This current recession is testing that theory in a big way. (And, yes, it's OK to use the 'R' word now. It's the 'D' words we are trying to avoid now—depression and deflation.)
James Hammer, president and CEO of Hammer Packaging, says 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 says.
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 in 1Q09.
With quarterly numbers such as this, it stands to reason that the label market is being impacted to an extent. "Labels have not been immune from the worldwide recession, and packaging certainly isn't recession-proof," says John Zarwan, an independent consultant for the printing and packaging industries. "While packaging and packaging printing hasn't been hit as hard as many other industries, there is no doubt that it has declined."
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