Forecast: hazy

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U.S. ad spending growth will slow this year to its lowest level since the recession of 1991, according to McCann-Erickson World- Group's forecasting guru.

At his annual midyear forecast last week, Universal McCann Senior VP Robert J. Coen cut his 2001 outlook to 2.5% from his December 2000 year-ahead 5.8% forecast, led by a significant slowdown in major consumer media.

But recovery is ahead: Mr. Coen predicts 5% growth in 2002, thanks to midterm congressional election advertising and Winter Olympics spending.

This year, though, is bleak. Traditional national media-broadcast and print-will see just a 0.2% overall spending increase this year, Mr. Coen said. Local broadcast and local print advertising will see a single-digit increase, he said. Add in increases for direct mail, Yellow Pages and the Internet, and total U.S. ad spending this year will increase by Mr. Coen's forecasted 2.5%.

Last December, Mr. Coen had forecast 5.8% growth in U.S. advertising in 2001, a sharp drop from previous years, but still nearly double the growth in the gross domestic product. With the economy diving faster than expected, Mr. Coen said ad spending won't outpace GDP growth in 2001.

GDP is still expected to grow 2% in 2001. While Mr. Coen insisted ad spending also will grow slightly, U.S. measured traditional advertising spending fell in the first quarter, according to Taylor Nelson Sofres' CMR. (See TurnSignals, P. 72.)

According to Mr. Coen, national ad spending-including all media and disciplines such as direct mail-will grow 2.1% to $151.26 billion, and local advertising will grow 3.1% to $98.54 billion. That will result in a still-healthy $249.8 billion spending, he said.

"We're not looking at any great shakes-national or local-in 2001," said Mr. Coen, whose lower forecast was previewed in last week's Ad Age. The growth rate will be the worst year-over-year change since 1991, when spending retreated 1.2%. Since then, a strong U.S. economy has led advertising to nearly double, from $128.4 billion in 1991 to $243.7 billion in 2000.

While the first two quarters have been weak, the third quarter will be "terrible," with no Olympic Games or election advertising to boost ad spending, Mr. Coen said. The fourth quarter will look relatively better, he said, since the fourth quarter of 2000 saw the beginning of the slowdown.

A 5% increase in local media, 4.5% increase in direct mail and 10% increase in Internet advertising won't be enough to counter the loss of $6 billion to $8 billion in dot-com advertising in traditional national media. Besides the loss of that spending, the loss of the dot-coms has brought down the pricing structure for all advertisers, Mr. Coen said.

"We have something to celebrate today. We only have 200 days left in 2001," said Sean F. Orr, chief financial officer of McCann parent Interpublic Group of Cos.

Mr. Coen's lower forecast had been widely anticipated by Wall Street professionals, who have complained all year about "poor visibility."

Overseas markets may soon join the U.S. in the slowdown. Adam Smith, director of knowledge management at Zenith Media, London, said preliminary numbers for Zenith's forecast show spending growth rates are "headed below zero in the U.K. and down again in France & Germany."

Zenith, owned by Cordiant Communications Group and Publicis Groupe, will issue its forecast at the end of June, but it already revised downward its 2001 U.S. spending forecast in April, from 4.6% growth to just 2.4%. Taylor Nelson Sofres' CMR next month expects to trim its 2001 spending projection from 3.8%.

"There is an old Chinese curse: may you live in interesting times," Mr. Orr said. "We and others in the business we're in have been touched by that curse."

Contributing: Laurel Wentz

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