News Analysis: Economy Slows, Will Advertising Follow?

From The Article:

This week brought grim economic news on various fronts, calling into question not only the durability of the economic recovery in general, but also the associated recovery in advertising spending that began in 2010.

However, the latest economic woes are unlikely to send advertising into the kind of nosedive that gripped the industry in 2008-2009.

The negative economic data covers a number of key areas. First and foremost, in the housing market, Standard & Poor's announced that the S&P Case-Shiller Home Price Index fell 0.8% from February-March, the eighth month-to-month drop in a row -- bringing the index to its lowest point since the second quarter of 2002.

It prompted S&P index committee chairman David M. Blitzer to remark: "Home prices continue on their downward spiral with no relief in sight." Economists and real estate experts agree that more declines are likely, now that the temporary prop provided by a popular government tax credit has been removed. The situation is made worse by the large inventory of unsold homes and homes in the process of foreclosure.



Consumer confidence also declined in the most recent measure, with the Conference Board index (measuring consumer sentiment about the next six months) dropping from 66 in April to 60.8 in May, reflecting concern over the rising cost of food and fuel along with the continuing declines in the housing market.

Economists had expected a small increase to 67; a level of 90 would be considered healthy for the economy. At the same time, the number of Americans seeking unemployment benefits rose to 424,000, exceeding the figure (375,000) associated with economic growth.

Read More: MediaPost Publications News Analysis: Economy Slows, Will Advertising Follow? 06/01/2011

Being (somewhat) in the advertising business, here's something advertisers should consider:

As marketers we are so often faced with the dilemma of having to cut advertising in times of economic softness. But here is some real data that you can use to illustrate why that is a bad idea.

McGraw-Hill Research study of over 600 Businesses found that:
1981-1982 …. business that maintained or increased their ad spend during this time
* Averaged higher sales growth during the recession and in the following 3 years!

By 1985 …. sales of the businesses that maintained or increased their ad spend during that recession
* Sales had risen 256% over those that had cut back on advertising

Likewise in 2001 …. another study found that aggressive recession advertisers
* Increased market share 2 ½ times the average for all businesses in the post-recession

In 2002 …. the Strategic planning institute illustrated that during economic expansion
* Although 80% of businesses increased their advertising spend there was NO improvement in market share

Statistics On Advertising During a Recession | MarketingProfs Daily Fix Blog

I think with the recession continuing (despite the claims that it's over!) advertisers may seek inexpensive forms of advertising on radio, digital billboards, and TV - and for TV, I see advertising on sub-channels as a great value. It's inexpensive, very targeted, and the audience is growing as people cut the cable for the savings.

"This week brought grim economic news on various fronts, calling into question not only the durability of the economic recovery in general, but also the associated recovery in advertising spending that began in 2010".
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Hmmm ... the stock market just dropped 280 points on the news of the whopping 38,000 new private sector jobs created. What a way to start The Summer of Recovery 3.