Ad Spending Trails U.S. Economy, Budgets Shift To Unmeasured Media

A week after ZenithOptimedia Group issued a quarterly tracking report revising its U.S. ad spending estimates down for 2005, new mixed signals are emerging for the U.S. ad economy. On Monday, influential Wall Street analyst, Merrill Lynch's Lauren Rich Fine, issued a report indicating that ad spending now is expected to trail nominal growth in the U.S. gross domestic product, a development she described as "unusual this late into an economic expansion." Radio ad spending, meanwhile, got some moderately good news, as the Radio Advertising Bureau released September spending estimates showing a modest gain of 2 percent for the month of September, an improvement from radio's year-to-date growth rate of 1 percent.

While not exactly something to boast about, radio's September rebound comes as many traditional media--especially newspapers, consumer magazines, business magazines, and local broadcast TV--are facing slowdowns in what was projected to be a relatively stable year of ad spending in between two Olympic/elections years. The major growth has been coming from new media, especially online, as well as out-of-home, and emerging media such as cinema and place-based media outlets.

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In its quarterly update issued last week, ZenithOptimedia said it revised its forecast for U.S. ad spending in 2005 down to a gain of 3.6 percent from an earlier forecast of 3.8 percent. Merrill Lynch's Fine now projects U.S. ad spending will rise 4.2 percent, excluding direct mail. At that rate, she says, ad industry growth would still trail U.S. GDP growth.

"Expectations are justifiably low, but fourth quarter 2005 is shaping up a bit better as some funds were shifted from the third quarter into the fourth quarter, there are some improvements in radio and television trends, and looking ahead the Olympics, elections, and World Cup should all help 2006," she wrote in a research note distributed late Monday.

Fine attributed the soft ad economy to a "variety of factors," including a low rate of economy inflation, which has capped the overall increase in advertising budgets.

Another factor moderating rates of overall ad spending is the shift away from "traditional media on services that offer more measurable returns," some of which are not "being captured in our overall estimates of marketing expenditures." She cited product placement and viral marketing as two of those examples.

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