ITES*

*It's The Economy Stupid

I suppose I asked for it. Earlier in the digital era my site was one of the few covering photography that ever wrote about economic things, such as camera company financials, exchange rates, recessions, global distribution, and so on. That came about due to both a dearth of such useful information to those interested in photography, as well as my background; I took my MBA coursework (as part of my PhD program in New Technology Economics and Management) at the Kelley School of Business (IU). Soon after the turn of the century I found myself in the unique position of understanding photography, technology, and economics, so I spent time writing about all of them. 

I've since weened myself away from doing much in the way of economic commentary. Plenty of photography sites now have mimicked what I did early on and report camera company earnings, adding their own opinions about what that might mean. The whole "Nikon is failing and will go out of business" school of thought is based upon all those opinions ;~).

Thus, post mortem, you can judge how well those other folk writing about camera companies understand economics by just comparing today's reality with what they predicted. I was heartened to see that dpreview last week reported "Nikon's operating profit this year is 10.1B yen more than it was pre-pandemic" (my emphasis; remember, the most cited comment from most photography sites back in 2019 was "Nikon will fail"). Someone actually noticed what really happened. Finally.

During the teens I was spending a lot of time, especially in email and fora responses, poo-pooing that "Nikon will fail" mantra. That nonsense was coming mostly from fan-boy activism, but it ended up permeating the click-baiters, too, so everyone kept seeing headlines about Nikon's imminent failure. My prediction during this period was essentially what turned out to happen: Nikon would move away from consumer cameras, downsize, and end up with a strong core prosumer business that was smaller. (Anyone with any understanding of Nikon's history could have guessed that from previous cycles in Nikon Imaging, where the same thing happened.)

However, Nikon not failing is not what provoked me to write this article, it's just a preamble I needed to write. 

Mainstream media—if there is such a thing; humans are acting more like herd animals and reacting to the loudest noise now—is pontificating incessantly about inflation, recession, and other economic factors. For example: the US Federal Reserve dramatically hiked interest rates and is talking about how aggressive they'll continue to be in addressing inflation. So the media talks about inflation, inflation, inflation, and generally without any context. Same is true for recession, job growth, GDP, and anything else that has a faint whiff of economics to it. 

Which means that, partly due to all the economic information I've presented in the past, I'm now getting lots of "what will the recession mean for the camera market?" questions. A lot of questions.

Of course, explicitly stated in such questions is that there is a recession. Because the media constantly says we're in one (or will about to be in one).

So it's time to write about economic things again from a photographer standpoint, because the question I'm getting asked is itself a problem.

What is a recession? Investopedia says it's "a significant decline in activity across the economy, lasting longer than a few months." A common fallacy is that a recession is two quarters of negative growth in the GDP (this is the simplistic macroeconomics definition commonly taught in an introductory class). Recessions are also generally triggered by something. Another problem is that recessions can be local, widespread, or global. Thus, recessions can have differing impacts on different parts of the market.

Recessions are also really only seen in retrospect. And here in the US only the National Bureau of Economic Research really has enough credibility to say yay or nay, and...they do so after the fact. They haven't said we've had a recession, so no recession in the US (yet).

Thus, the first problem with the question I keep getting is whether we're in a recession or not. Here in the US, I'd say we're more in what I'd call a disruption. Employment is tight, real income for most workers is up, demand is higher than supply for many items, state governments have surpluses and are spending some of them, and Congress has passed enough stimulative packages recently that it's actually likely that the underlying economic incentive is hotter than the US can manage at the moment. 

Pandemic, war, and stimulus have all had a strong influence on where we are today. Many economists are wondering whether we're seeing "natural inflation" or "artificial inflation." Gas prices are a good example of that (both auto and natural gas, though in slightly different ways). While the political parties like to say that the other is at fault for "too low" or "too high" of a price at the gas pump where you fuel your auto, generally such prices have little to do with party politics, and there's little an incumbent President can do to change prices. Then, if you're going to cut off Russia as a gas supplier to the world via sanctions, that puts pressure on all suppliers. Right now, both the auto and natural gas that is available isn't where it needs to be physically, and it takes time for the global system to adjust. 

Okay, enough of the generic bits, let's talk about the impact on the photo community.

In terms of the camera business, I'd say this: demand for many (most?) cameras and lenses is clearly higher than supply, thus for the short term, I don't see any impact on the camera makers other than that they might shift even more of their production away from lower-demand, low-end products to high-demand, higher-end products. I can clearly see this in my camera book business: sale of books for the higher-end cameras is stronger than ever, and would probably be still higher if those cameras were more readily available. I don't get the sense that any of the camera makers is struggling with anything other than maximizing their product mix to generate optimal profit. 

What the media isn't reporting, and what is a far more important aspect to what will happen to camera and lens sales in the near future is this: what's the value of the dollar? For several years, the dollar stayed in the 100-115 yen range on currency exchanges, and mostly in the 105-115 range. Starting in March, things rapidly changed. Since then, the yen/dollar relationship went from 115 to 135, a 10-year high.

So what happened in March? 

In late February Russia invaded Ukraine. Due initially to sanctions, global monetary policy started changing, moving many towards what everyone feels is the "safe" currency (US dollar). More importantly, the US Federal Reserve raised interest rates in March, indicated that they'd do so again, and then did so twice since. So now you have what's regarded as the strong currency also paying higher interest rates, so the global money moves with more current towards the dollar. 

Exchange rates have long had a strong impact on camera/lens prices. I used to track that quarter by quarter, but stopped doing so when supply started exceeding demand (~2011 onward for DSLRs, for instance). Up to that point, any change in currency valuation was highly predictive of camera pricing in the US. After that, not so much. 

You'll note that on August 1st, NikonUSA raised camera and lens prices. This was well after Nikon Europe did the same. Some of that delay was due to the currency exchange. While the yen/dollar number was increasing, the yen/euro number was decreasing. 

So why did NikonUSA have to raise prices at all? Probably because parts supply costs for the products have gone up, and those may not be defined by fixed yen/dollar contracts. Freight hauling costs have gone up, too, though the trend on shipping containers is that they're now coming down from a peak reached in late 2021 (they're still far higher than they were prior to the pandemic, though).

You're probably starting to realize that the answer to all the questions I'm getting lately about camera/lens pricing is likely to be somewhat vague, and short-term in nature. Quite a few intersecting factors are in play at the moment, and it's unclear how some of them will resolve. Economists who do this for a living are generally happy when their predictions fall within a +/-3 percentage point range of reality, and any that manage to get a prediction dead-on correct know that they were just lucky. 

So here's what I'd say is in play at the moment and what it means for you buying cameras and lenses:

  • The supply chain has eased some, but it's still well below where it probably needs to be. This implies popular products continuing to move in and out of inventory. I hear from some of my friends still buying parts that they think that by the end of the year the supply chain problem will mostly resolve, but we could still have further disruptions (China's saber rattling over Taiwan is something to watch). Advice: if you need a popular product, buy it when it's in inventory, or get on a reputable dealer's wait list; you'll pay whatever the price is when the product becomes available. Sorry, no discounts in the foreseeable future.
  • Demand for many recent products is so high that the camera companies are still restricting new order taking by dealers, distributors, and even subsidiaries. For really high demand products, you'll have an even longer wait before you can get them. If you don't have status with a camera company (e.g. NPS) or dealer (high volume buyer), you're probably out of luck for a bit, as others will get in line in front of you. Advice: basically, the same as the previous bullet, but more urgently so.
  • Products that have not yet been introduced, but will be soon, are highly likely to also be in short supply. We will also see price increases on some of them (though perhaps not when measured against inflation). For example, I expect an eventual Nikon Z6 III to be US$2500, not US$2000. Advice: do you really need the latest and greatest? (see below) If not, wait. If you do, it's the same as the above bullets.
  • The exchange rate and declining shipping costs give the camera companies some clear headroom here in the US near term. I think that because of the above bullets, most of the camera companies will now restrict their big instant rebates and sales until the actual holiday sales season begins (November). However, the Japanese are micromanagers, so if demand falls, they'll just move their sales forward. Advice: if you can wait for the holiday sales, particularly for products that are meeting supply at the moment, do so. Otherwise, consider previous generations of the product, or refurbished versions of said product.

There's no "rocket science" in the above advice. We've been on this path for awhile now, and I don't see anything I can predict that's going to change it in the short term. 

On dslrbodies I've just posted an article about what happens as products get discontinued. Thus, those sticking with DSLRs need to read that article. But I'd say that it's really important that everyone figure out where they are for the next three year period in regards to equipment:

  • Ride out what you've got. DSLR owners are sitting pretty at the moment in this regard, at least if they have a current generation camera. The migration of so many from DSLR-to-mirrorless has spiked the inventory in the used and refurbished markets, so it's easy to pick up backup bodies and new-to-you lenses at historically low pricing. I expect to see inventory clearance over the holiday, as well. Advice: make a budget, identify what you're missing, and pick up used/refurbished as the budget/missing list allow. You're committed to buying at the trailing edge of the camera market.
  • Careful and modest iteration. Yes, you lust over a Nikon Z9 or Sony A1 or some latest/greatest lens, but you should ignore that craving and go with a more careful approach, where you take advantage of periodic sales. A Nikon Z6 owner, for instance, doesn't immediately need a Z6 II. The cost of upgrading at the moment is too high for what you get. But if a Z6 III gets announced and Z6 II's go on sale, maybe the pricing becomes favorable enough to upgrade. Or perhaps the Z6 II going on sale due to a new iteration means that the time has finally come to move from your D750 DSLR to the Z6 II mirrorless. Advice: identify exactly how much you'd spend for how much improvement. Don't go over that line! You should stay in the middle of what's available to get the best value for your money.
  • Staying at the leading edge. Your life will stay the same: you're going to get on wait lists and pay full price (which may be going up). Advice: You're committing to paying full price and perhaps even waiting for firmware fixes if you try to stay at the leading edge of what's available in the camera market. Plus, if you don't have the disposable income to justify this, you really need to get out of this category. You should avoid incurring credit card debt when interest rates are going up if you can avoid it, as most cards have provisions that can change the rate upwards. 

Oh, you just wanted a simple prediction? Short of another globally disruptive event, Canon, Nikon, and Sony will all post fiscal year numbers higher than their current estimates (which are already highly positive). How much higher will depend upon how well the supply chain restrictions resolve before the end of the year, and how much inventory they can move through targeted sales during the holiday season coming up.

Bottom line: more of the same. Prices inch upward, demand exceeds supply on many products, camera companies successfully adjust to it all.

__________________

Bonus: Demand is probably somewhere between 6m and 7m ILC units annually at the moment. 6m if the camera makers keep putting their production mostly into the upscale products, 7m if the Big Three manage to put out the right lower-priced options. However, supply is currently constrained to about 5m units, though that's slowly loosening as the camera makers get their parts supply sorted out. Operative word: slowly

Even if there was a recession happening about now—again, a contraction of the economy—the demand for the higher priced items such as a Nikon Z9 is still well above what is being produced, so all that would likely happen short term is that supply and demand would become more balanced for such items. 

Those that can afford a US$5500 camera don't seem to be as affected by everything that's going on in the economy right now, postponed purchases during the pandemic, and have the disposable income to buy such products. In a quick n-sampling of my Z9 book purchasers, I found them pretty much all to be either working professionals with high incomes, or retirees with more than enough discretionary cash to fuel their hobby. Z9 demand isn't going to go down because of inflation. It would take a huge global disruptive event, or a huge economic contraction that would be regarded as a depression (both tend to happen together). Those things, however, aren't predictable.

Update: clarified a couple of statements that could be misinterpreted.

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