Recession's official. So when will it end?

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It's official: The U.S. is in a recession.

Big deal.

When the National Bureau of Economic Research ruled last week that a recession had begun in March, that merely rubberstamped what the ad community figured out long ago.

The real question: When will it end? The consensus is that the economy will begin to recover in mid-2002, but advertising's rebound is unlikely until 2003.

While the big picture includes factors not seen before-such as more global ad budgets-analysts say this recession could ultimately behave much like the past two recessions, July 1990-March 1991 and July 1981-November 1982.

slow recovery

That's not necessarily a good thing for advertising. Consider that U.S. ad agency employment peaked in August 1989, 11 months before the last recession began, and it didn't pass its pre-recession peak till January 1998, according to U.S. Bureau of Labor Statistics data. From employment peak to trough, agencies lost 23,400 jobs in the last downturn.

U.S. agency employment this time peaked in August 2000, seven months before the recession's official start. Agencies cut 14,900 jobs from the peak through August-not reflecting widespread layoffs after Sept. 11.

Most analysts agree a combination of conditions-the dot-com boom, a spurt in financial advertising aimed at the droves of individual investors entering the stock market and an unprecedented economic boom-won't be present again. That suggests the climb out of this recession will look much like past cycles.

The big drop in first-quarter ad spending this year actually was a correction of the previous overspending by technology, telecommunications and financial services companies trying to make their mark, said Lauren Rich Fine, advertising analyst at Merrill Lynch & Co. During the second half, she said, the ad recession has begun behaving like a more typical recession.

"The early numbers this year had less to do with the economic cycle and more with the excesses of 1999 and 2000," Ms. Fine said. "I think this [current situation] is really normal."

It's not unusual to see advertising drop ahead of a recession and recover later-typically a year after the economy turns up, Ms. Fine said. On the positive side, she noted, advertising tends to grow faster than the economy in an expansion.

Ms. Fine revised her U.S. ad spending forecast for 2001 downward on Nov. 29 to a drop of 5.1%, but held her forecast for 2002 to a drop of 1.5%. Both figures exclude direct mail, which she expects to perform better than general advertising.

Kevin Sullivan, Lehman Brothers' advertising analyst, weighed in with a warning to stock traders, who have bid up agency stocks 35% in the last two months. In a research note Nov. 29, he said those investors are counting on a recovery early next year, but "if history holds true to form and the rebound in ad expenditures lags the broader economic recovery, the companies ... would be challenged to produce significant earnings upgrades next year."

Adam Smith, head of knowledge management at Publicis Groupe's and Cordiant Communications Group's Zenith Media, London, said the final tally on 2001 ad spending will be "pretty much what you'd expect. It looks pretty nasty for this year." Zenith presents its forecast for 2002 and final projection for 2001 at this week's Media Week conference hosted by UBS Warburg LLC (see Late News, P. 1).

Advertisers' spending patterns this year have shown the link between ad spending and sales is not as strong as the connection between spending and corporate profits, Mr. Smith said. This year, companies cut ad spending to protect corporate earnings, while low inflation helped keep up consumer spending and housing sales, he explained.

This recession has also been more global in scope, while past cycles usually began in the U.S. and then spread slowly around the world, Mr. Smith said. Overseas ad markets this time trended down quickly after the U.S., mainly due to globalization; many companies now have global ad budgets, he noted.

With most economists calling for a second-half recovery in 2002, that means advertising probably won't emerge from its doldrums until 2003. If there is any consolation, it's that recession calls by the National Bureau of Economic Research are usually late in coming. The bureau declared the start of the 1990-91 recession April 25, 1991-a month after recovery began. So maybe there is hope for 2002.

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