After a recent period of slight recovery, the deteriorating outlook for consumer spending levels may begin to negatively impact on advertising spend, forcing growth down once again.
Advertising is very closely tied to consumer confidence and corporate profitability. In 2001 there was a sudden dip in corporate profitability and it was primarily this which caused ad growth levels to plummet. However, throughout this period and through most of this year, consumer spending levels in the UK and US had not been particularly affected, with High Street confidence remaining despite many warnings of a recession.
More recently, though, consumer confidence has begun to slip, particularly in the US. There are worries that a rise in interest rates could severely curtail consumer spending, as debt to disposable cash ratios are particularly high at present (see Ad Spend Could Hinge On Consumer Spend, Says Merrill Lynch). This would put the squeeze on adspend. On the other hand, corporate profitability is improving, which should help buoy ad revenues to some degree, says Merrill Lynch.
According to Merrill, consumer confidence in the US, as measured by the Conference Board index, has plummeted to its lowest point in nine years. This bodes badly for the seasonally imperative Q4 High Street sales, says the broker.
Advertising Most recent advertising news has been relatively positive, apart from WPP’s surprise earnings warning last week, which stemmed mainly from the fall in consumer confidence (see WPP Sees Muted Revenue Growth In Third Quarter).
A seven month run of growth at the UK’s ITV is set to come to an end in December, as tough comparisons with a five-weekend month last year bring growth to -10.0% in a market down by 5.0%, according to Merrill Lynch analysts.
Nevertheless, the first quarter or so of next year is expected to be relatively strong for UK television revenues. Merrill cites OMD figures which forecast growth of 8% in January, 7.5% in February, 3% in March and 10% in April due to a late Easter (see OMD Sees Advertising And Media Turnaround In 2003).
The broker is sticking with a muted 0-2% growth forecast for UK advertising in 2003.
