The Long, Slow Road to Economic Recovery

With economic forecasters and business analysts so often revising downward their optimistic predictions of the last couple years, it's natural to wonder whether the recovery currently underway in the United States is for real. The answer that emerges from the combined views of stock analysis, economic research and exhibition industry data appears to be yes, the recovery's real – but for the tradeshow industry, that will probably mean real moderate and real slow.

Nancy Sidhu laughs at the question: "I would say not only is the economy recovering for real, it has been for almost a year now, growing at quite a nice pace and is likely to continue through 2004."

Sidhu is a senior economist who prepares national forecasts for the Los Angeles Economic Development Corp. The LAEDC predicts that the U.S. economy will grow by 4 percent in 2004 and 3.6 percent in 2005, based on macroeconomic indicators including the real gross domestic product, the consumer price index, housing starts, light vehicle sales, nonfarm employment and unemployment.

Sidhu pointed out, "In a general way, the economy's capacity to grow is a combination of how many people are working and how productive they are. Trends in the labor force and productivity show them growing by an average of 1 percent and 2.5 percent per year, respectively, meaning the annual capacity for growth is 3.5 percent. "On that basis, anything around 4 percent is fine," she said, adding that GDP has returned to levels not seen since the boom years of 1997-1999.

But growth in tradeshows is not returning to its boom-years' rates. Although industry insiders are reluctant to forecast specific numbers, trends suggest only moderate growth. From 1995 to 1998, net square footage of exhibit space at tradeshows grew between 5 and 7 percent each year, according to Tradeshow Week's quarterly reports of tradeshow statistics. The year-end report for 2003 actually reflected a decline in exhibition space of 0.5 percent, compared with 2002.

Michael Hughes, Tradeshow Week associate publisher and director of research services, believes exhibition growth is lagging that of the U.S. economy because of cautious exhibition and event marketing spending, which he said "should increase in 2004 vs. 2003, but the increase will be very modest." According to Hughes, many exhibitors believe that, even if their company does experience significant sales and profit increases, the benefits probably won't trickle down to their marketing budgets for many months or even a year.

One expert feels exhibition and event marketing spending may never return to pre-downturn levels. Bob Crosland, a stock analyst with AdMedia Partners who follows the performance of business-to-business media companies, said: "Some tradeshows just might not ever be coming back. There is a strong sense in a number of industrial and B-to-B segments that the marketing structure of some industries has just changed."

If Crosland is right, people who replaced face-to-face marketing and sales with other forms – mostly online – have "broken the habit" of spending money on tradeshows. When their budgets are increased, they will use the new money within the new structure they've established for finding customers and vendors. Besides, he added, "people aren't going to see customers at tradeshows if they can find ways to isolate themselves from their competitors."

Hughes, too, predicted that Web and e-mail marketing will become the key medium competing with event marketing. "Industry leaders need to be aware of these shifts and market the value of events in contrast to Web marketing," he said.

But, Crosland conceded, this all depends on the industry. In some markets, where people used to find vendors through tradeshows, they might now find them by typing a few words on google.com. But some industries, he said, "are going to be exactly the way they were before. There's going to be a whole spectrum."

As an industry, tradeshows have the peculiarity of being comprised of discrete business sectors, each with its own dynamics. A construction show can see double-digit growth even as one of its telecommunications counterparts sees double-digit declines. Rather than homogeneously characterizing such a mixed bag, most industry insiders prefer to address show growth industry by industry.

"Housing, construction, finance and insurance are all bouncing back or are way above where they expected to be by now," said Mary Power, president and CEO of the Convention Industry Council, relating anecdotal evidence gathered at the CIC's delegates meeting in February. "Those in security, clearance, anything having to do with computer viruses. Tech is still wobbly, but not as much as it has been."

In fact, labor statistics support Power's observations. Sectors that are hiring – a good sign of growth – are professional and business services, education and health, and leisure and hospitality. Those that are reducing payrolls: manufacturing, information (a nebulous category encompassing information technology, telecommunications, entertainment and the media) and the government.

Hughes pointed out that over the past few years, B-to-B exhibitions that serve industries producing products and services for consumer consumption have performed better than many pure-enterprise shows. Sidhu added that as inflation rises, the Federal Reserve Board will raise short-term interest rates (meaning long-term interest rates will go up too). Growth in interest-sensitive sectors, like housing, real estate, non-residential construction and automotive, will slow down.

As for convention and tradeshow organizers themselves, the Bureau of Labor Statistics places them in the administrative and support category, under professional and business services – one of the sectors that is growing. According to the March labor report, that sector added 356,000 jobs between March 2003 and March 2004, for a 2.2-percent rate of growth.

In terms of outside investment in the tradeshow industry, market specificity will again be a buzzword. Sidhu said that, generally speaking, the boom mentality – when people bought high to sell higher – is gone. "People are being more careful about where the value is and putting their money into what they might want to hang onto," she explained.

Hughes agreed, asserting that there is a significant amount of private equity waiting to be deployed in a variety of industry sectors, including media, publishing and events. But, "valuation is being debated and negotiated much more closely than during the boom. There's a real fear of overpaying for media assets," he said.

All this explains the "cautious optimism" mantra everyone's been throwing around so freely. As Power put it, "I think a lot of programs that were postponed for so long are being put back into place. You can't cut any more. You've reduced your budget, staff, and now you have to focus on moving forward and taking care of who you still have."

"In general," Hughes concluded, "2004 will not be that much different than 2003, except that the industry will see modest growth, and optimism will continue to increase. I don't think we'll see any big bangs, but I think industry executives will start to consider the industry structure and existing business models with an eye to making changes and innovating."