• by Paul Gough , March 9, 2004

A second agency holding company is signaling that the advertising recovery may falter next year, with warnings tied to the U.S. economy and what might happen after the November elections.

Pure play media/research company Aegis Group PLC, parent company of media shop Carat USA, told analysts during a conference call Tuesday morning that there's a significantly stronger advertising outlook for 2004. Aegis predicts a 5.3 percent rise in U.S. ad spending compared to 2003, which is about a half- point higher than it had expected at an investors conference in December.

"We've got the confluence of the world coming out of an economic downturn, together with a U.S. presidential election and the Olympics," said Douglas Flynn, chief executive officer of Aegis Group PLC, echoing the thoughts of many in the advertising business about the so-called quadrennial effect of the elections and the Olympics. Flynn said Aegis' predictions were based on client spending and not on econometric modeling. He said that after several years of cutting marketing expenses, companies were now reinvesting in brand equity and trying to drive the top line.

But Flynn stopped short of saying the advertising recovery would continue into next year, which at the moment is pegged at a 3.8 percent year-over-year increase in the United States compared to 2004.

"In 2005, our expectation is that we will see growth slow somewhat," Flynn said. The 2005 forecast is based on econometric modeling and not on what Aegis' clients think will happen in that year, way ahead of marketing budgets.

Aegis isn't alone in being concerned about what 2005 may bring. Next year is absent the presidential elections and Olympics that will boost ad spending by at least 1 percent in 2004. There won't even be midterm elections, which saw lightning strike in 2002, until 2006, when it will be either two years into the Kerry administration or the last two years of President Bush's second term. But it's what has been happening in Bush's first term that sets Flynn and fellow CEO, WPP's Sir Martin Sorrell, to wondering about the economy in the United States and by extension, the rest of the world.

In a slide accompanying the presentation, Aegis said "loose monetary and fiscal policies" would continue into the fourth quarter, when the presidential elections are held. Flynn said that Aegis saw U.S. interest rates, which have been at historically low levels, increasing after November elections.

"But I wouldn't wish to be cynical about that matter," Flynn said.

Flynn's comments Tuesday are reminiscent of Sorrell, who in his report to analysts said that he was concerned about what would happen in the United States after the election.

"We're out of the bath, but we're a little bit concerned that we might take a shower in 2005," Sorrell said recently. He said that escalating government expenditure--the highest level since 1967 at the height of the Vietnam War--and a sky-high deficit were leading to a bearish outlook on 2005.

"Whoever gets in will have to deal with that issue," Sorrell said at the time.