One of the few bright spots in the forecasts was direct mail.
Robert Coen, senior VP-director of forecasting at Universal McCann, said he expects U.S. ad spending to increase 5.8% to $292.0 billion in 2006. He estimates a 4.6% increase to $276.0 billion for this year. That estimate is a considerable downward adjustment from his original prediction in December 2004 that U.S. advertising would increase 6.4% in 2005.
Globally, Coen forecast a 6.0% increase in advertising spending to $604.0 billion in 2006. This year's global expenditures are expected to total $569.8 billion, up 4.8% over 2004. That is lower than Coen's December 2004 forecast of a 6.1% increase this year.
Steve King, global CEO of ZenithOptimedia, now predicts global advertising in 2006 will increase 5.9% to $427.3 billion, compared with an earlier estimate of 5.8%. King estimated ad spending will total $403.7 billion this year, a 4.8% increase compared with 2004. That is down from a 5.0% growth prediction a year ago.
King characterized growth for 2005 and 2006 as "stable with healthy hot spots." Coen had a much less sanguine view, characterizing 2005 ad growth as "meager" and spending as "weak."
"It was a pretty poor year," Coen said. "There was a lot of cautiousness among major marketers. Advertising stalled despite a pretty good economy." He said 2006 will show marginal improvement. "We're not looking for a boon, but we think things will get a little better in 2006," he said.
Coen and King presented their forecasts at the UBS 33rd Annual Global Media Conference on Dec. 5 in New York.
Merrill Lynch & Co. offered a more conservative outlook in its "Advertising & Marketing Services: Annual Advertising Update." The brokerage forecast U.S. spending will grow 4.5% in 2006. That was down from its previous 5.2% growth prediction.
Merrill Lynch also downgraded its 2005 forecast, from 3.7% growth to 3.2%. The company said it expects global spending to increase 2.9% in 2005 and 4.8% in 2006.
Forecasters pointed to several factors, including advertiser caution due to the Iraq war and Sarbanes-Oxley regulations as well as a decline in demand for traditional media as contributors to the lackluster numbers.
"Spending by national marketers, particularly in traditional media, was pretty weak," Coen said.
An exception to the overall trend was direct mail. "Nearly 10 billion more pieces of mail advertisements have been sent in 2005 compared to the year 2000," Coen said. Nearly 2 billion more pieces of advertising mail were sent this year than in 2004.
The trend toward direct mail was influenced by both the restrictions on telemarketing as a result of do-not-call legislation and the continued focus on measurable media, Coen said. "Marketers have, in recent years, focused their marketing resources on more immediate, measurable short-term responses," he said.
Coen added that despite postal rates increasing next month and the rise in paper, printing and handling costs, he expects "many of these [direct mail] programs will be continued."
Merrill Lynch, noting the same trend, said that if direct mail were excluded from its numbers, U.S advertising growth would be just 2.3% this year and 4.5% next year.
"Along with corporations' cautious attitude towards ad spending in an uncertain environment, we think the emergence of the Internet and other newer forms of marketing is allowing advertisers' dollars to work harder with more measurability," said Merrill Lynch research analyst Lauren Rich Fine.