• by David Goetzl  @dgoetzl, December 4, 2006

Overall, Merrill Lynch predicts U.S. ad spending will inch up 2.6 percent next year--a forecast based on a survey of its analysts covering categories that comprise some 60 percent of the ad market.

Analyst Lauren Rich Fine said the bare increase is "not surprising, given the more muted economic expectations next year."

The country's largest category, autos (15 percent of the ad economy), is forecast to increase a slight 2 percent next year and in 2008. Although much of the media coverage of the industry signals it is in peril, Merrill Lynch's John Murphy predicts those struggles will lead to more marketing spending.

Murphy said General Motors, Ford and VW are "going to be spending a lot of money to rebuild their brands." Another factor influencing his forecast is that a record number of new vehicles will launch in the next two years, including 54 in the 2008 model year. That follows 61 in this model year. (The historical average is 35.)

Another highly competitive category, telecom, is expected to post a more robust increase--up 5 percent--partly due to company mergers. This year, AT&T spent heavily to "re-introduce" itself after linking with SBC. Next year, its merger with BellSouth should be the impetus for a major effort to reinforce yet another iteration of the AT&T brand.

Also, in the wireless area, Cingular will be rebranded as AT&T, another spending driver.

Similarly, the pharmaceutical category is expected to increase significantly--in the mid single-digit range--despite increased pressure in Congress to curb direct-to-consumer ad spending. That pressure may be ratcheted up as Democrats take over leadership in the House and Senate, according to Merrill Lynch analyst David Risinger.

"Many of these politicians have it out for the drug sector, and they've promised to raise the noise level and complain about advertising to consumers," said Risinger. "One of the proposals will be that drug companies be precluded from doing any DTC in the first two years following a drug's launch, just to ensure it rolls out safely."

But he says the current assumption is that such legislation will not be enacted in 2007.

New launches of two diabetes drugs and a smoking cessation product from Pfizer should drive the jump, overcoming decreased spending on brands such as Zyrtec and Fosamax, once their patents expire.

On the retail front, the new nationally branded Macy's will spur an expected 2 percent decline in the department-store arena. A "national" Macy's is the result of the merger of two major companies, bringing a combined ad budget of an estimated $1.4 billion. "Substantial cuts," particularly in print, will come next year, said Merrill Lynch's Stacy Turnof.