Those are the many shapes the economy's growth curve could take in 2002, according to experts. Now that they've finally agreed the U.S. economy is in recession, economic forecasters and industry executives believe the recovery will begin sometime in the second half of 2002. Whether the climb is sharp and fast or slow and labored is another story. And a real rebound for advertising remains unlikely till 2003.
But there's opportunity in the down market: Many marketers plan to continue advertising to maintain their market share or take it from weaker competitors who go dark. The third-quarter ad-spending numbers from Taylor Nelson Sofres' CMR found nearly half of the top 100 advertisers had increased spending this year, and some of those who dropped spending had only made superficial cuts (AA, Dec. 17).
"The economy goes through cycles. This is not surprising," said Steve Davis, senior VP-marketing, Heineken USA. "We had a 10-year expansion. It wasn't going to last forever. Whether [the recession] is a 12- or 18- or 24-month cycle, we're going to plan for the long term." Mr. Davis said the brewer will increase ad spending in 2002 at the same annual rate it has for the past decade. "Those that invest in bad times take 10 steps [ahead] while everyone else maintains" market share, he said.
Media watchers say the marketplace does not show signs of improvement in the near future, and they're bracing themselves for a weak first half in 2002.
"We don't see any reason that it won't be soft again," said Tim Spengler, exec VP-director of national broadcast for Interpublic Group of Cos.' Initiative Media North America, Los Angeles. "We don't see any strength. There are no signs in any of the 20 categories we follow."
Media buyers say there is some bottoming out of TV prices, but this may not last.
"If you look at it right now, it's a flat marketplace," said Mel Berning, exec VP-national broadcast, MediaVest USA, New York, part of Bcom3 Group. "But there is a lot of upcoming high-priced inventory that hasn't been sold," including February's Super Bowl and some Olympic time slots, he added.
BACK TO BASICS
Investment managers, meanwhile, are beating the same "back to basics" drumbeat they did in late 2000. They say the industries that are poised to do better in early 2002 will be staples such as food, household products and some areas of financial services, which benefit from low interest rates.
Those blue-chip industries are the same places where agencies expect to find billings and growth next year. Still, agencies suspect clients' purses will remain tight until the economy turns up.
Improvement could start in the second half of the year, but significant strides won't come until 2003, said Francis J. Kelly III, president-chief operating officer of Arnold Worldwide, part of Havas Advertising. While some believe the market is close to bottoming out, "clients and agencies are going to be extra cautious in 2002," he said. He predicted no great increase for the advertising market in billings from existing advertisers or startups and said reviews likely would come from account consolidations.
Agencies are anxious to get back to business after the bloodletting of 2001.
"Do I see an upturn in 2002? Yeah, I do," said Kelly O'Dea, president of Interpublic's FCB World-wide. "I don't know how quickly or how much, but I think these last four months or so of , people have really prepared themselves to go at it for 2002."
At the annual media conferences-held the first week of December by UBS Warburg and Credit Suisse First Boston-agency and media executives were downbeat about any chance for an early year recovery. Most said 2002 will be a long haul for advertising and media and that real recovery won't come till 2003, after the rest of the economy begins to recover.
The industry's two top forecasters both predicted 2003 will be unremarkable. Robert J. Coen, senior VP-director of forecasting at Interpublic's Universal McCann, called for 2.4% growth in overall U.S. advertising in 2002. John Perriss, chief executive of Zenith Optimedia Group, the joint venture of Publicis Groupe and Cordiant Communi-cations Group, said overall U.S. ad spending (traditional media, Inter-net, direct and other) this year will fall 0.8%, with traditional media falling 1.5% (AA, Dec. 10).
In 2001, overall U.S. spending fell 4.1%, according to Mr. Coen. Mr. Perriss's data show overall U.S. spending in 2001 slipped 2.4%, with traditional media down 6%. If Mr. Perriss is right about 2002, this would mark the first time on record that ad spending fell two years in a row.
Stock-market strategists point out that while the 2001 tsunami of corporate-earnings warnings appears to have abated, corporate profits are nowhere near where they would be at the start of a recovery. And economists note unemployment continues to rise; that will depress consumer spending, the one strong current in 2001.
The debate on the turnaround is complicated by the chief complaint of 2001: low visibility. While the war on terrorism in Afghanistan appeared to wind down at year-end, congressional action on an economic-stimulus plan was delayed until 2002 after a partisan battle erupted on how much of any package should be tax breaks vs. how much should be spent giving unemployed people health benefits and a longer period of unemployment compensation.
So far, the only agreement on Wall Street and Madison Avenue is the relief to see the end of 2001. With the booming numbers of 2000 far behind, year-over-year comparisons will look less dismal in 2002.
"I think we'd all like to get a drink, write off '01 and get on with '02," said David Readerman, equity growth strategist at investment bank Thomas Weisel & Partners.
Don't pour the drinks yet, because 2002 comes with no guarantees. Supporters of the U-shaped scenario say the lack of a stimulus package will hurt business in the first half and unemployment remains on the rise, which puts a damper on consumer spending in the short term and points to a slow, labored climb back from recession.
"There is now a strong likelihood that there will not be any additional fiscal stimulus. While we don't believe it will change the timing of the recovery, we feel that it may change the intensity of the recovery," wrote Merrill Lynch & Co. chief economist Bruce Steinberg. The day after the stimulus bill was declared stuck by congressional leaders, Mr. Steinberg held to an early December forecast of 5% economic growth in the second half, but warned that without the fiscal help, that may be as good as it can get.
V FOR VICTORY
The V-shaped scenario's supporters point to the apparent success of the Afghanistan campaign and a combination of low interest rates and cheap energy prices, forces that preserved consumer purchasing power through the shock of the Sept. 11 attacks and the mass layoffs that followed. With consumer spending making up 69% of gross domestic product, it will be key to any recovery scenario.
In this model, a midyear combination of economic stimulus and improving corporate profits-thanks to the restructuring wave of 2001-will meet pent-up consumer demand. If that scenario plays out, business will take off like a shot and the second half will more than make up for the hardship of the first, some Wall Street optimists believe.
"We're not looking for an anemic [corporate] profit recovery," said Jeff Applegate, U.S. equity strategist at Lehman Brothers. That would be good news for advertising, which this year has fallen right behind advertisers' sinking corporate profits.
L OF A DOWNTURN
Not everyone's convinced the economy is headed for a conventional turnaround. "We had one of the great booms of all time, and certainly one of the greatest financial bubbles of all time, and now people are expecting a relatively shallow and brief recession. It just seems too simple," said Doug Henwood, head economic analyst for the financial newsletter The Liscio Report. "In the early '90s, the bubble burst-in a very dire form-for Japan. I'm not saying we'll have 10 years of a Japan-style swamp. But it's still simply [unlikely] to have a bubble burst and have such minor consequences."
The L-shaped recovery model is not popular on Wall Street, especially since the stock market has rallied back to its pre-Sept. 11 level and several industries-even technology-showed pockets of improvement by year-end in anticipation of an economic upturn. Despite the depressing year, stock indexes aren't dramatically changed from year-ago levels (See AdMarket 50, P. 32). Nearly all Wall Street crystal balls point to the recession to end sometime around mid-2002.
WALL STREET TO SESAME STREET
Things could be worse. Con-sumer-confidence numbers-from the bellwether surveys of the University of Michigan and the Conference Board-are higher this time than during the last recession, said Matt Johnson, Thomas Weisel's economist. Lower interest rates, cheaper energy and home refinancing are still adding to consumer discretionary income, he said.
"This is one of the weirdest recessions we've had in a long time. People are still buying things," said Jim Hall, VP-industry analysis at auto consultancy AutoPacific.
Added Paul Ballew, exec director of market and industry analysis at General Motors Corp.: "Con-sumers have adjusted to the economic outlook. They're not nearly as pessimistic now as they were in the early '90s." Then, the nation faced different issues, such as a large national debt, inflation and the savings-and-loan debacle, he explained.
Some late-year numbers are encouraging, including a November increase in housing starts and some stabilization on the pace of initial jobless claims, which could mean the mass layoff wave is subsiding. The Conference Board's consumer confidence index showed an upturn in December (AA, Dec. 31).
But with the stimulus package in limbo and many large advertisers still afraid to spend on media, insiders agree the first half of 2002-and maybe the third quarter as well-will be brought to you by the letter R, for recession.
Contributing: Hillary Chura, Jon Fine, Wayne Friedman, Jean Halliday and Rich Thomaselli