Marketing World Girds for an 'Uneven' Recovery

Lifts in Spending, Jobs, Sales Quell Double-Dip Recession Fear -- but Wobbling Lies Ahead

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NEW YORK (AdAge.com) -- A spate of better-than-expected reports on consumer spending, jobs and retail sales last week appeared to take an edge off many fears of a double-dip recession.

That's the good news.

The not-so-good news is that, despite the return of tepid gross domestic product growth late last year, some marketers, such as Procter & Gamble Co. and Target Corp., seem to be girding for an extended period of low growth, high unemployment and more conservative spending patterns for years into the future. And big developing markets such as China and India, which grew robustly right through the recession, may be on the brink of slower growth.

The unemployment rate edged up a tenth of a point to 9.6%, but job growth data for June and July was revised upward. Meanwhile, Kantar Retail reported same-store sales, excluding Walmart, grew 3.4% last month, up from 2.9% in July, but it will be tougher for retailers to keep up growth starting this month as they face tougher comps. Elimination of government stimulus programs sent existing homes sales last month to a 15-year low, and U.S. automotive sales fell below a million, the slowest month in 28 years. But the bright side here -- if there is one -- is the sector has a lot less power to hurt the broader economy than in the past. Residential construction has fallen as a share of U.S. GDP and U.S. automakers, while producing less, are more profitable than during the peak of the economic expansion as they restructured for a smaller market, making further layoffs less likely.

On the other hand, while manufacturing broadly has been among the biggest growth drivers in the U.S., much of that has been fueled by rebuilding inventories. That can't last if the inventories don't sell. Procter & Gamble Co. Chairman-CEO Bob McDonald summed up the muddled outlook of many marketers in an earnings conference call last month when he said he doesn't expect a double-dip recession, but added, "I think the economic recovery in the United States will be uneven."

In an apparent adjustment to more conservative expectations for the next three years, P&G in recent months has changed its top-line growth targets for senior managers and will compensate them based on how they do vs. the competition rather than vs. an absolute growth target . And while P&G added $1 billion back to its ad spending for the fiscal year ended June 30 -- a 13% increase -- it's planning more modest single-digit growth for ad spending in line with sales growth this year.

Consumer Edge Research, in its monthly poll of 2,500 consumers last month, found improved outlook for business conditions and household income and an overall rebound in consumer sentiment after two months of sharp declines. Yet consumers said they plan to shift to discounters, buy lower-priced brands, wait for sales, pay down debt and save.

John Gerzema, chief insights officer of Y&R and author of the soon-to-be-published "Spend Shift," sees a permanent move toward more conservative spending patterns. "This isn't a new normal," he said. "It's an old normal. It was only in the mid-1980s that we started to go from saving 10% of our income to a negative savings rate. I'd almost argue the past few decades were the anomaly. We're going back to a more practical way of spending, where we don't have access to the same amount of credit."

Mr. Gerzema calls it a shift to a "debit" society from a "credit" society, and some retailers are shifting gears to address consumers who prefer to spend more frugally or operate on cash. Target next month will begin pushing its new 5% rewards program that gives shoppers 5% off when they use either a Target credit or debit card, and Kohl's is adding $20 million to its marketing budget to position itself as "the smartest choice for a cautious consumer."

But marketers broadly are far from throwing in the towel. WPP CEO Martin Sorrell, who tended to be blunt about poor prospects heading into the recession, is sounding no alarms of a double dip. In an investor call last month, he said clients have realized "the world wasn't going to end" and are "starting to look for expansion."

"I haven't witnessed any fourth-quarter cutbacks or cold feet," said Phil Cowdell, North American CEO of WPP's MindShare, "but [I] still see people investing in building brands and driving leads."

Other agency chiefs are also relatively bullish. "Our short-term projections do not show moderation, even in the face of the press talking about a double dip," said Tom Harrison , chairman-CEO of Omnicom Group's Diversified Agency Services group, who said his group is seeing double-digit growth in 2010.

But Dave Senay, global CEO of Omniom's Fleishman-Hillard, said the consensus of agency heads in the PR industry is for a "second-half softening, which may be a harbinger of a longer-term trough." A double-dip recession is "a real possibility."

Media companies appear likely to fare well, at least through year end. Edward Atorino, media industry analyst at Benchmark Co., sees strong TV demand, in part from political buying, and some business spilling into the post-election period due to "crowding out" from heavy election spending. Demand from clients has spread well beyond a rebounding auto industry, he said, though visibility beyond 2010 remains "limited."

Globally, it's been hard to tell there has been a recession in developing markets such as China, India and Brazil. But marketers eagerly cashing in on the opportunities have made many markets, such as package goods, much more competitive and price-focused.

One senior consumer package-goods executive predicts continued growth for developing markets over the next five to 10 years, but at slower rates. India recently joined China in raising interest rates to cool off growth and avoid inflation, he noted. And rising or stabilizing commodity prices could force a rebound in pricing or cooling off on promotion globally in the next year, he said.

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Written from bureau reports.

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