Ad Trades: Ads Fuel A Fifth Of Economic Activity, But It's Shrinking

by Gavin O'Malley, Nov 23, 2004, 12:00 AM

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The ad industry will generate $5.2 trillion in direct and indirect spending in the U.S., or 20.5 percent of U.S. economic activity in 2005, according to projections released Monday by a coalition of leading ad trade associations. As big as that seems, it actually represents a decline of about 5 percent from 2004, a year fueled by incremental ad spending from the Olympics and political advertising campaigns. Not surprisingly, advertising's impact on U.S. employment will also fall slightly in 2005, though advertising will still account for about 21 million jobs in the U.S. next year. The drop in employment activity was attributed to improved "productivity."

The study, "Comprehensive Economic Impact of Advertising Expenditures," was compiled by Global Insight for trade groups including the American Association of Advertising Agencies and the Association of National Advertisers, which comprise The Advertising Coalition. The report accounts for all economic activity generated by advertising, including direct spending, supplier spending, and inter-industry activity.

The release of the study comes at a time when a wide array of government policies and potential laws threaten to curtail or prohibit certain forms of advertising, including such mega categories as food and direct-to-consumer prescription drugs.

"This is the kind of analysis that's going to affect government policy," said Michael Raimondi, executive managing director of Global Insight's IT and telecom consulting practice, who headed the project.

The study takes into account indirect connections, such as the increased revenues of non ad-related companies that advertise, and the jobs they will create with those extra funds.

Total advertising spending by businesses in the U.S. for 2005 is projected to reach approximately $278 billion, according to the study.

The total estimated impact of the advertising industry included the spending on advertising, the direct impact on sales of $2.3 trillion, the impact on supplier economic activity of $1.2 trillion, and the impact on inter-industry economic activity of $1.4 trillion.

The estimated 21,117,903 jobs supported by advertising spending in the U.S. was made up of 10.3 million jobs from sales directly generated by advertising, another 4.7 million jobs generated by suppliers of products and services to the direct sales employers, and 6 million jobs from third tier inter-industry businesses that support direct sellers and suppliers.

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