When the economy is bad, people spend less money.
There, saved you a trip. This isn’t a knock on Advertising Week – I think it’s a great concept (although I wish events were all in one location and educational tracks didn’t overlap), but James Carville said it best, “it’s the economy, stupid.” When people are getting hammered, they spend less money and buy less stuff. The response of the company making the stuff isn’t to advertise more – it’s to cut product price. Want to cut product price? Cut costs like advertising. It’s a vicious cycle.
Here’s the crummy news courtesy of AdWeek:
Ad spending, according to numbers from Jon Swallen, svp, research, Kantar Media North America, which did relatively well in 2010—up 5.1 percent in Q1, 5.4 percent in the Q2, 8.7 percent in Q3, and 7 percent in Q4—is seeing a real dip, with Q1 2011 down to 4.4 percent, and Q2, 2.8 percent. Additionally, spending increases for the top 100 advertisers has stalled. Interpublic market research unit MagnaGlobal estimated in June that U.S. ad spending will climb 4.8 percent next year, but that projection is due in part to the additional $3 billion expected to be spent on political advertising and Olympic-related marketing.
More importantly, in the U.S., where consumer spending still accounts for about 70 percent of the GDP, consumer confidence is plummeting along with the economy, and new census and government data is compounding the bad news. Last week, for instance, the Labor Department reported that in 2010 consumers earned and spent less for a second straight year. Is that a reaction to a nasty cyclical downturn or a more fundamental shift as the American middle class—the backbone of the economy—increasingly gets squeezed? The decline in middle-class consumers, says Vincent Létang, evp, director of global forecasting at MagnaGlobal, “has really accelerated and widened in the past three years. The golden age of modern advertising was built in the ’50s and ’60s with the rise in consumption and the growing middle class. Now we’re seeing its decline which is not at all good.”
Indeed, while financial observers debate whether the U.S. is headed for a double-dip recession, Americans already act as if it’s happened. “It’s a case of reality versus perception: There’s a real feeling that things are slowing down with increasing concern and worry about, ‘How do we [Americans] get out of this mess?’” says James Heekin, CEO, Grey Global Group. “That’s the No. 1 issue and no one has the answers.”
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