Recovery Watch: Advertising boom in U.S. ended in '01

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U.S. advertising in all media totaled $231.3 billion in 2001, down 6.5% from $247.5 billion in 2000, according to Universal McCann's final report on advertising spending for 2001.

The revised total for 2000 now indicates that ad spending soared 11.3% over 1999. But in 2001 the boom ended. In percentage terms, last year's decline was the worst since 1938, when spending fell 8.1%.

The report revises 2000's spending up from $243.7 billion; the 2001 figure is revised downward from the $233.7 billion estimate made in December.

During the early 1990s, advertising got back into a stronger growth trend once the economy began to recover in 1992 following the 1990-91 recession. Near the end of the `90s, the economic recovery and the strong growth in ad spending were due to let up a bit, but unique forces kept the acceleration going beyond the point when moderation should have set in.

Unwarranted exuberance about stock-market values and unrealistic expectations about the near-term payout from new technology helped fuel excessive ad demand by companies that would not be profitable for years. Many believed that a new economy was in the making, with recessions soon to be a thing of the past. New, unprofitable dot-com brands with virtually no ad budgets in 1997 were spending, by 2000, nearly as much as the entire automotive industry. By 2000 "advertising as a percent of GDP" had reached a record level of 2.51%.

burst bubble

In 2001, the bubble burst and advertising came back down to earth. Now the industry is beginning the process of crawling out of a hole brought about by the shakeout.

The economy has begun to start rising, as we had expected at the end of last year. The Winter Olympics and political advertising have helped start the ad recovery, as we had forecast in December 2001. In a few more months, we should have enough hard facts to consider whether to revise our previous 2.4% forecast for ad spending growth in 2002.

Robert J. Coen, senior VP-director of forecasting at Interpublic Group of Cos.' Universal McCann, has been tracking ad spending since 1950.

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