Coen, senior VP-director of forecasting at Universal McCann, also made his first predictions for 2007.
He said the U.S. will see advertising grow 5.8% to $303.0 billion, while overseas advertising will outpace that, growing 6.6% to $337.0 billion. "From all indications in 2006, overseas spending will outpace the U.S.," Coen said.
Merrill Lynch analyst Lauren Rich Fine said in an industry report that the 5.8% prediction "feels aggressive to us" based on her view of a "slower economic outlook."
"We do not share Coen's optimism for 2007," she said. As for 2006, Merrill said it is lowering its own forecast to 5.1% growth from 5.3% previously projected.
Coen gave several possible explanations for the below-expectations growth.
Ad spending from the mid-1990s through 2000 was "highly over-expanded," and during those years, media prices rose faster than inflation, Coen said. Many marketers could not maintain their ad spending pace and "corrections were inevitable," he said.
The muted spending may not end any time soon. "The cautiousness and climate of risk aversion had settled in earlier in 2005, and much of it could persist for some time," Coen said in his written report.
"The data doesn't promise a big boon," he said. However, Coen added, "in terms of increases we were expecting, we're pretty close."
Zenith Optimedia Group, another media agency that issues regular forecasts, is slightly more upbeat. "We're seeing flat to a slight uptick from our last projection," said Bruce Goerlich, exec VP at Zenith. Goerlich said the agency would come out with its own updated projections this week.
As for year-end numbers, Coen said total U.S. advertising growth in 2005 was a gain of just 2.8%. Final fourth-quarter numbers were even more sluggish than he had anticipated; the prediction was a gain of 4.6%. The normal re-expansion in advertising at that point in the economic recovery was not unfolding but instead was in a relapse, Coen said.
Media channels posting growth so far this year include Internet and direct response advertising. Internet ad spending has continued to grow rapidly. "Money is being spent at an extraordinary rate on the Internet," he said. Spending on "nonsearch ads" online rose 19.4% in the first quarter. Coen doesn't track search advertising. He likened search advertising to the money packaged goods companies pay to retailers to have their wares displayed prominently on store shelves.
"The only up-to-date, current measurement of Internet advertising is TNS," Coen told BtoB . "They seem to be pretty consistent with the numbers we get documented by the Census Bureau surveys. Their method doesn't include any kind of search advertising either."
Coen's Internet advertising numbers for this forecast came from 2004 Census Bureau data.
Zenith's Goerlich called Coen's lack of search data "strange." He said Zenith considers search in its thinking and is "relying heavily on our folks in the interactive space" for guidance.
In a bright spot for traditional media, Coen said, despite the postal rate increase in January, direct-mail advertising in the first quarter grew 3.5% over the year-earlier period, to 20.6 billion pieces. "It usually goes down in the first quarter, and this year it went up," Coen said. He said restrictions on telemarketers likely played a role, spurring marketers to shift their direct response mix. He also attributed the gain to marketers themselves. "The mail advertisers have been around a long time," Coen said. "They're very smart; they have good databases, so their opportunities are good." The renewed focus on ROI adds to that.
"The whole idea of ROI that's getting so much attention probably increases the tendency of marketers to expand their mix to include direct response efforts in their total marketing," he said.