US Postal Service 2005 Annual Report Download - page 45

2005 Annual Report United States Postal Service | 35
blow to the nation’s energy infrastructure. Oil producing
platforms and oil refineries were shut down. The growth
in the U.S. economy in the last two years had been largely
due to growth in consumer spending and the housing
market. Consumer spending growth in 2006 is expected
to weaken as energy costs squeeze spending power. The
Federal Reserve increased the federal funds rate at its
November 2005 meeting indicating that it is more worried
about the inflationary risk rather than downside growth
risks. Higher interest rates are expected to slow the growth
in the housing market.
We requested and the PRC issued a Decision that postage
rates be increased by 5.4% across-the board. The new
rates, accepted by the Board of Governors on November
14, 2005, will be implemented January 8, 2006.
With the projected 2006 retail sales slowdown and the
expected rate increase, we project a lower growth rate
for Standard Mail volume and a small volume decline in
workshare First-Class Mail. Economy-wide retail sales, an
economic indicator for Standard Mail and workshare First-
Class Mail, grew 5.0% in 2005, but we expect them to
slacken as a result of increased energy prices and interest
rates. Increased energy prices reduce consumer’s pur-
chasing power thus diverting consumer expenditures from
other goods and services, and higher interest rates will
dampen the demand in the housing sector. With decreased
mortgage refinancing, less cash is available to consumers
for large purchases.
Even with the pause in 2005, we do not foresee a reversal
of the multiyear downward trend in total First-Class Mail
volume. Looking at single-piece and workshare First-Class
Mail volume together, we can see that economic growth
has only slowed the declines in First-Class Mail volume
and revenue in 2005. With a projected slowdown in eco-
nomic growth in 2006, our forecast is for First-Class Mail
volume to decline in 2006.
Priority Mail volume, which showed positive growth in
2005 after four years of decline, is forecast to be flat in
2006 due to the slowdown in the economy coupled with
a rate increase. Express Mail has a highly elastic demand.
As in the case of Priority Mail, the rate affect will over-
power increases in volume due to economic growth in the
economy, leading to a decline in the 2006 volume. The
growth we forecast in Package Services is based on pro-
jected increases in both Bound Printed Matter and Media
Mail volumes, even though we expect a decline in Parcel
Post. Building the business to exceed these forecasts is a
major priority in 2006.
We project revenues to increase by $2.3 billion, or 3.4%
to $72.3 billion in 2006. Most of this increase is due to
the requested rate increase which will be implemented
January 8, 2006.
Network Growth
Historically, First-Class Mail volume and the growth in
contribution it has produced have financed the cost of op-
erating and expanding our universal delivery network. Over
the last several years, however, the volume of First-Class
Mail has declined while the number of delivery points in
our network has continued to increase. Since 2001, First-
Class Mail volume has decreased by over 5.6 billion pieces
while our delivery network has expanded through the
addition of 6.6 million new delivery points. Furthermore,
we operate a retail network anchored by over 37,000 Post
Offices, stations, branches and contract units.
Delivering mail to individual delivery points six days a
week is a major part of our work. Each year, we add over
1.8 million delivery points to our network. In 2004, we
adjusted our reporting of rural and highway contract deliv-
eries to customers who have their mail forwarded to a Post
Office box as an alternative to a physical address. Prior to
2004 we included both addresses in our count of “pos-
sible” delivery points. We also no longer count a vacant
delivery point on rural and highway routes as “possible”
delivery points. These adjustments reduced our total de-
livery points by 824,388, and we have therefore adjusted
our 2004 Operating Statistics in last year’s report to reflect
this change. Our actual growth in delivery points in 2004
and 2005 were 1,782,900 and 2,006,577 respectively.
We expect the number of delivery points to continue to
grow for the indefinite future as a result of population
growth and continuing demand for new housing. The
Bureau of the Census reported housing starts in August
2005 at a seasonally adjusted rate of 1.8 to 2 million.
Also, Harvard University’s Joint Center for Housing Studies
reported that “Demand for new homes is on track to total
as many as 20 million units between now and 2015.” This
projected increase in household growth will translate into a
continuing expansion of our delivery network. In the same
period, First-Class Mail volume is projected to continue
to decline. As the revenue and contribution produced by
First-Class Mail decline, we will lose our primary historic
means of financing our delivery and retail networks. This
combination of trends will continue to challenge us to build
all other postal business to continue to finance the nation’s
universal delivery system.