Economy Watch: Ad fall may be worst since Depression

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It's going from bad to worse: 2001 could see the biggest year-on-year percentage decline in ad spending since the Great Depression.

Zenith Media Aug. 31 downgraded its already pessimistic forecast, predicting 2001 U.S. ad spending will fall 4.2%. Merrill Lynch & Co. analyst Lauren Rich Fine today will cut her forecast to a 4% decline.

Such a decline-albeit off 2000's unprecedented boom-would mark one of the sharpest drops in the history of advertising. The biggest recorded declines to date: 1938, down 8.1%, and 1942, down 4%. The projections are far worse than the last recession, 1991, when ad spending dipped 1.2% (See chart, P. 24).

Pessimistic projections aren't a surprise: U.S. measured ad spending through May was down 6.4%, according to Taylor Nelson Sofres' CMR.

There's no significant upturn in sight. Zenith expects U.S. spending next year to grow a negligible 0.1%.

Ad declines in 1938, 1961 and 1991 each were followed by healthy 4% growth the next year. That may not happen this time.

Across the board, Ms. Fine said, media spending likely will not rebound until the second half of 2002 and even then, the recovery will be more muted than had initially been expected.

"We are seeing stabilization, but we're also seeing no change in the economy," said Ms. Fine. "I don't think that we have hit a trough."

Last year's phenomenal 11.3% growth in spending, according to Zenith figures, would have been tough to beat even in an upbeat economy. "It's not a collapse, it's a correction," said Rich Hamilton, CEO of Zenith North America. "We're still going to end up 7% higher than 1999, which was quite a robust year."

But a decline in ad spending is extremely rare. A drop this year would mark only the fifth year-on-year decline on record, according to historic data from Interpublic Group of Cos.' Universal McCann.

Zenith, owned by Publicis Groupe and Cordiant Communications Group, lowered its projection to -4.2% from the -2% it forecast just two months earlier; this marks the third downward revision since Zenith last December initially projected 4.7% North American growth for 2001.

Adam Smith, Zenith's London-based head of knowledge management, doesn't expect things to get worse. "Personally, I'd be surprised if the figures get another downgrade," he said. "They're pretty bad as it is."

Analysts and industry mavens trimmed U.S. forecasts once first-half numbers indicated a grimmer picture. Ms. Fine today will cut her 2001 projection to -4% from -0.7%.

Robert J. Coen, senior VP at Universal McCann and patriarch of ad forecasting, makes projections twice a year. So his June prediction of 2.5% growth this year-slashed from 5.8% last December-will remain unchanged until December 2001. His is the most upbeat forecast, and he is one of the few forecasters to predict growth.

Mr. Coen's outlook is brighter in part because he includes a wider range of marketing services than Zenith's focus on major media. Zenith believes direct mail is likely to grow by 5% this year and Yellow Pages advertising by about 2%, but neither is covered by its forecast. When Ms. Fine includes direct, her 2001 U.S. ad decline falls to 2.6%.

Zenith expects U.S. ad spending in major media this year to total $145 billion, down from $150.4 billion in 2000 but still strongly ahead of $134.3 billion in 1999.

This year, network TV led the decline. According to Zenith's spending outlook, the upfront TV market (time bought before the TV season) was one of the worst ever, bringing networks almost 14% fewer ad dollars than last year. Magazines are forecast to suffer a 5% decline this year, and newspapers 4%.

The United States is leading the free-fall. Ms. Fine projects non-U.S. ad spending this year will dip 0.8%. When the U.S. is included, she expects worldwide spending to drop 2.6%.

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