NewsLine Column: Every Bellwether Has A Silver Lining

Earlier this month the IPA’s latest Bellwether report quashed hopes of an improvement in fortunes for the advertising industry by revealing that marketing budgets were revised down again during the second quarter of this year. However, Christopher Williamson, economist at NTC Research, the company which carried out the study, argues that things are not as bad as first thought.

The IPA Bellwether survey, which tracks changes to marketing budgets among 200 of the UK’s top advertisers, came in below expectations in July. The survey showed that current total marketing budgets were revised down on average. The data was not as bad as first appearances suggest. Data from previous surveys had shown that new budgets for 2003 had been set higher on average than actual spend in 2002. The latest survey merely suggests that these budgets have been cut to some extent.

But nevertheless, some 29% of companies reported a downward revision to current marketing budgets in the second quarter while only 18% reported an upward revision. All types of marketing activity covered by the survey, with the sole exception of internet-related spend, were reported to have been revised down on average. To understand what drove the latest downward revision requires a quick review of recent economic trends.

In the first quarter of 2003 a pre-war lull in business activity occurred as companies adopted a wait-and-see attitude to how the Iraq war scenario would pan out. The UK economy in fact all but stagnated in the first three months of the year. Following the successful capture of Baghdad in early May, signs of an immediate bounce back in business confidence – which in turn would hopefully unleash corporate spending – were keenly awaited. But such a recovery has been slower to develop than many expected. At the time that the recent Bellwether report was being prepared, few convincing signs had appeared. In contrast, as the US Federal Reserve recently noted through its chairman, Alan Greenspan, there seems to exist a “pervasive sense of caution”.

However, recent data suggests that the global economy is beginning to show some signs of post-Iraq war life, with forward-looking business surveys such as the Purchasing Managers’ Index (www.ntc-research.com) turning upwards in the US and UK. As a result, a consensus of opinion seems to be building to suggest that global economic growth is likely to steadily strengthen over the next twelve months. The UK, with a competitive currency compared to recent years, is set to fare well in this environment. Increased sales and profits will eventually translate into job creation, higher capital expenditures and greater marketing spend, though it is possible that this process will take slightly longer than in previous recoveries due to the series of set-backs that business confidence has had to pick itself up from. These set-backs have included the bursting of the dotcom bubble, global stock market collapses, the events of September 11, the corporate accounting scandals in the US and two fairly major wars.

It is not therefore wholly surprising that a pervasive sense of caution has existed in recent months. Indeed, anecdotal evidence collected in the latest Bellwether survey showed that the downward revision to marketing was attributable to disappointing sales and revenue growth, and in particular to a weaker than expected improvement in business conditions since the end of the Iraq war. The recent downbeat Bellwether data therefore most likely reflect weaker than budgeted spend on marketing in the early half of the year and not necessarily any trimming of planned spend for coming quarters. So marketing spend in 2003 may yet exceed that of 2002.

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