Second-quarter economic growth and corporate profits came in above expectations, raising prospects for the second half. Full-year U.S. ad spending is on track to pass 2000's record, setting the stage for a solid 2004. There is a plausible case for continued recovery for the economy and ad market.
Yet prospects for advertising job growth are limited. U.S. ad agency employment is down 16.3% from the ad market's December 2000 peak-and below where it stood in 1990. While agency employment has stabilized, according to Bureau of Labor Statistics data, it could fall going forward as agencies grapple with client pressure to reduce costs.
Media companies show no desire to do significant hiring even as ad spending picks up. Media employment-TV, radio, print, online-is down 9.7% from the ad peak.
In the overall U.S. ad market , employment has increased 1% from a post-boom bottom hit in May 2003. But ad market jobs-1.48 million in June-are off 9.7% from the peak and down 4.4% from the recovery's official November 2001 start.
The jobless ad recovery mirrors the jobless economic recovery: The economy, measured by gross domestic product, grew at an annual rate of 2.4% in the second quarter, up from 1.4% in the first quarter. July's official unemployment rate fell to 6.2% from June's 6.4% nine-year-high. But many people gave up looking for work, and the number of employed actually fell.
Across the ad market, many lost jobs won't return. Leo Kivijarv, director- research and publications at investment banker Veronis Suhler Stevenson, cites areas where companies made permanent cuts: elimination of duplicate jobs following a decade of mergers; jettisoning jobs added in the dot-com bubble; reducing fat and overhead; and cutting staffing through deployment of technology. "That said, as the ad industry starts making money again, we'll start seeing some jobs come back," but it will be many years before media employment returns to its boomtime peak, he said.
Advertising-job losses reflect a broader change in the U.S. job market. Erica Groshen, an economist with the Federal Reserve Bank of New York, said job losses in recessions in the `70s, `80s and to a smaller degree 1990-91 were substantially cyclical; many came back with the rebound. In contrast, the rise in unemployment around March 2001-November 2001 was almost all permanent as companies made structural changes such as outsourcing, moving facilities offshore and deploying technology.
upended lives, markets
While this downturn was comparatively mild-perhaps testament to fiscal and monetary policies that helped sustain demand for housing and expensive consumer goods-it's upended lives and markets. "When demand falls for your product, we're now in a world where managers really do think very hard about what the long-term message is," Ms. Groshen said. "They don't just assume it's temporary."
Wrenching change could pay dividends. She noted growth without jobs means higher productivity, adding that companies used the recession as an opportunity to improve their competitive position. This could pave the way for sustained recovery with new jobs. Workers, she said, "will face an improving job market-eventually."
All bets are off if the economy slides into recession because of rising interest rates, a housing slump or other factors. Even if the consensus is right that the economy will stay on track, it's hard to be optimistic about significant job growth in the ad market.
There are bright spots. Market-research employment, for example, grew during the recession and is near a record level. Marketing-consulting employment also has grown.
There is also job movement at marketers, with robust activity for senior posts. At recruiter Spencer Stuart, global consumer-goods recruitment for the nine months ended June 30 was up 28%, said Joseph Kopsick, who runs that practice. Said Ann Badanes, a recruiter with Saterfield & Associates in Cincinnati: "It's coming back. But people are expecting it should be back the way it was in the late 1990s, and it's probably never going to be like that again."
Media companies are reluctant to add staff given uncertainty about whether advertisers will keep spending. Network and local broadcast TV companies, beneficiaries of the recent spending upturn, have increased employment just 2% from the 2002 nadir. Magazine jobs this year are flat; radio is down; Internet publishers, seeing signs of recovery, have added jobs this year (though staffing is 32% below the 2000 bubble).
Ad agency employment, down 37,500 from its peak, is harder to call. Said Linda Wolf, chairman-CEO of Publicis Groupe's Leo Burnett Worldwide: "It will come back, but obviously not at the same rate. ... People will assess this and [hire] in a very disciplined way." A top industry executive contends agencies will add jobs after they see clients resume capital spending, an indicator of advertisers' faith in the recovery. As the recovery continues, short-term there will be more cuts. For example, significant cuts are expected at Interpublic Group of Cos. when it details a restructuring plan Aug. 12.
Daniel Morel, chairman-CEO of WPP Group's Wunderman, said the agency field suffers from an "oversupply of talent" with too many people and agencies, depressing both margins and agencies' ability to expand. Mr. Morel sees better near-term job prospects in areas such as marketing services, database marketing and interactive. That's supported by Atlanta advertising recruiter Talent Zoo, where President Rick Myers said he's seeing growth in such disciplines as online and direct.
Certain other marketing services disciplines also are growing. Some of the fastest job growth among agencies serving the package-goods industry comes in specialty or non-advertising marketing services, reflecting a continued shift of attention from advertising to broader marketing tactics. LPK, a Cincinnati design and brand-identity firm whose biggest client is Procter & Gamble Co., saw business increase 43% in the first half of 2003, though employment was up a more modest 11% with 24 hires year to date.
Agencies are doing selective hiring. Interpublic's McCann-Erickson Worldwide, San Francisco, hired two creative teams just out of school. Dante Lombardi, exec VP-executive creative director on the Microsoft Corp. account, said young creatives are put right to work. "There is no time for an apprenticeship," he said.
More for less
Traditional agencies cannot escape a fundamental issue: Clients are demanding, and getting, more for less. The average margin paid to agencies has fallen since 2000, "and I don't believe it will bounce back any time soon," said Bear Stearns analyst Alexia Quadrani.
Michael Farmer, principal at Farmer & Co., a consultancy for advertisers and agencies, contends advertisers can get the work they need for 15% to 25% less than current prices by streamlining how agencies create and clients approve ads. The agency "factory" is still run much like it was when agencies worked on 15% commissions in the `80s, but agencies will be forced to change, he said.
With ad agencies increasingly paid by fees rather than commission, agency revenue does not necessarily increase when media spending grows. Indeed, Mr. Farmer expects agency revenue to decline because of client pressure-giving the advantage to an agency that, like Dell in computers, can create a more efficient model. Over the next five to six years, Mr. Farmer bets ad agency employment will fall as agencies "shake out old practices."
"Clients are absolutely committed to squeezing more," he said. "Agencies have got to jump on board. This is the way the world works today: You get more efficient." Agencies should put out the help wanted sign-not because they need more people, but because they need help.
contributing: alice z. cuneo, katie johnson, kate macarthur, jack neff