2008: Try Not to Worry Too Much

We've been fielding questions lately on how an economic slowdown may impact the convention and tradeshow industry. While it's good to remember the joke about economists having predicted six of the last two recessions, most economists still are forecasting a slowing U.S. economy because of the housing downturn, high oil prices and turmoil in the credit markets.

Tradeshow Week's 2007 Quarterly Reports so far have shown volatility, although a good sign is that attendance has been growing faster than net square footage, historically a mark of an expansion period.

Most of the economic concerns making headlines today should bypass the events industry. On a macro-level, an economic slowdown, something short of a severe recession, will not impact the convention and tradeshow industry too significantly.

Here's why.

For one, most business-to-business conventions and tradeshows are actually more reliant on consumer spending than they appear. Two-thirds of the U.S. economy is driven by consumers, and nearly 70 percent of tradeshows cover industries with products and services that ultimately end up in the hands of consumers. High-profile examples include Intl. CES, MAGIC Marketplace and the SEMA Show. Medical shows, the largest sector by number of events, also fit in this category.

Even with the housing downturn, the unemployment rate is at a historic low of 4.6 percent and personal income is rising. If consumer spending holds up, the economy and the tradeshow industry should expand in 2008.

For exhibitors, the weak dollar will continue to help exporters and make visiting the United States attractive to international tourists and convention attendees alike. It is also important to note that economic growth in China, India, certain parts of Latin America and the Middle East will continue to benefit the North American economy.

Even the credit market turmoil may have a roundabout benefit for tradeshows. The current TSW Show Management Survey (see Page 1) found that show producers' No. 1 concern was "industry consolidation" reducing the number of exhibitors and buyers at their events. Tighter bank and debt financing is cooling the boom in mergers and acquisitions across North America, which could end up benefiting shows in the near term.

Another positive sign is that show producers maintain their pricing power. According to our survey, 62 percent of show producers increased their space rates in 2007, with an average increase of 7 percent. In contrast, TSW studies from 10 years ago found the average annual price increase was closer to 5 percent.

Even though some of the headline economic concerns may not trickle down to conventions and tradeshows outside the housing industry, a downturn would slow the growth rate of shows.

To shed light on what a more significant downturn may entail, TSW Research analyzed how TSW 200 shows performed from the fourth quarter of 2001 through the second quarter of 2002. We analyzed 152 annual shows held in the period, looking at performance of all the shows, as well as how association-owned shows fared versus for-profits. The study also compared the largest 76 shows to the smallest 76 in the sample; and, finally, shows serving buyers that ultimately sell to consumer sectors compared to events in pure B-to-B industries.

During that challenging period, association and for-profit shows performed similarly, but the largest 76 shows in the sample did better than the bottom half, especially in terms of net square footage. This suggests that, during a recession, exhibitors migrate to the largest, most important industry gatherings.

But events in sectors that serve consumers did considerably better than pure B-to-B shows. Attendance declined at shows serving consumer-driven industries by only 6.1 percent, while the pure B-to-B shows dropped in attendance by 23.5 percent.

Late 2001 to mid-2002 was a unique time in U.S. history, so it may not be the best period to examine for a sense of how a significant downturn would impact the events industry in the future. In fact, I estimate that about 75 percent of the decline in late 2001 into 2002 was the result of concerns about travel and safety more than the economic indicators of the time.

Therefore, going back further to the recession of 1990 and 1991 may provide more insight. For comparison purposes today, the unemployment rate was 5.6 percent in 1990 and then jumped to 6.8 percent in 1991. According to TSW Quarterly Reports data, the industry grew robustly in 1990 and then experienced modest declines in the first three quarters of 1991. By the fourth quarter of 1991, attendance was growing by a healthy 3.1 percent. This suggests that after a more "normal" recession, tradeshow attendance can rebound quickly.

For clues to prospects for 2008, look to the unemployment rate and consumer spending. Also watch corporate profitability at the publicly traded companies in your sectors and hotel performance, especially at companies with downtown business and convention properties.

Corporate profits have been expanding and should hold up outside of the banking and housing sectors. In fact, corporate profits grew by 6.1 percent in the second quarter, according to the U.S. Bureau of Economic Analysis. Based on preliminary research, I feel that corporate profit trends are more closely correlated to exhibition industry growth than U.S. gross domestic product, for example.

According to hoteliers and lodging analysts, the outlook for 2008 is still good. The Nov. 20 issue of the Financial Times cited Hyatt Hotels CEO Mark Hoplamazian saying there's a disconnection between the slowing U.S. economy and what the article writer called a "still-buoyant lodging sector."

I expect that if the convention and tradeshow industry is headed for a downturn, the corporate meetings market will be the canary in the coal mine. The corporate meetings market, still robust today, would be the first to be cut back if corporations feared a significant downturn.

Many of today's economic challenges are not central to tradeshows and events, yet every sector and show is unique and impacted in a different way. The good news is that there seems to be a floor for how significantly the events industry is impacted by marketing shifts and economic trends. Business people feel that they have to meet, buyers are getting harder to reach, and corporations continue to invest in event marketing — even during challenging economic times.

Expect some ups and downs in 2008. But most of today's bad economic news is separate from news in the events world, and the industry should continue to expand.