Carat Boosts U.S., Worldwide Ad Outlook

When it comes to media spending, economic health apparently is in the eye of the beholder. Just days after a major Wall Street firm revised its U.S. ad spending outlook for 2004 downward due mainly to weaker than expected results from the newspaper industry, one of the world's largest media buying groups Friday boosted its expectations for both U.S. and worldwide ad expenditures.

"Carat is raising its forecasts for global advertising growth in 2004 to 5.7%," Douglas Flynn, CEO of U.K.-based Aegis Group plc, the parent company of Carat, said Friday morning upon announcing Carat's revised outlook. "This growth is being lead by the US and European markets, although growth in Asia-Pacific remains robust. We have also raised our forecasts for 2005 and now expect to see global adspend growth of 5% as early signs from advertisers suggest that their confidence remains stable."

Carat's global forecasts were revised up from its previous projections of 5.3 percent growth for 2004 and 4.4% for 2005.

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Carat's view of the U.S. marketplace has improved even more significantly, boosting its 2004 projection by half a percentage point to a growth rate of 5.8 percent and its 2005 scenario a full percentage point to 4.8 percent.

Carat attributed the U.S. correction to a "very strong first quarter," and while it noted that the second quarter has been "softer with concern over increasing oil prices and rising interest rates," as well as the first decline in consumer spending since September 2003, it said, "expectations are now for a strong third quarter, followed by a softer fourth quarter."

Carat attributed the improvement to better ad spending in the retail, telecommunications, pharmaceutical and automotive categories, and said the U.S. presidential campaign has put incremental pressure on the advertising marketplace.

"The two main drivers of growth in the first half of the year were paid political messages and an increase spend by traditional advertisers including General Motors, Nissan and Procter & Gamble," the agency's forecast notes. "The political advertising war generated over 356,000 spot-TV commercials in the January to June period, according to Nielsen Monitor-Plus."

Carat's view comes in contrast to some recent mixed signals, especially for the U.S. ad marketplace. On Tuesday, the equities research team at Merrill Lynch issued a revised forecast that took its expectations for U.S. ad spending growth down to 6.5 percent from a previous outlook of 6.6 percent. And on Thursday, the Radio Advertising Bureau released figures for July revealing the worst monthly results for radio ad spending yet this year. Radio ad expenditures fell 3 percent in July, due mainly to a 15 percent drop by national advertisers.

"While radio's rebound has been slower than anticipated," RAB President-CEO Gary Fries nonetheless predicted, "all indicators point to a healthy recovery by year-end 2004."

That last point echoes the view of Carat's forecast, which attributes an improved advertising marketplace to "strong macro-economic drivers," including a strong first quarter economy, high demand for advertising in sports events, and the impact of the U.S. presidential election. "The advertising pattern now appears to be set through the end of 2004, despite slower economic indicators in the second quarter," the agency predicted.

U.S., Worldwide Ad Spending


--------2004-------- --------2005--------
Previous Revised Previous Revised
U.S. +5.3% +5.8% +3.8% +4.8%
Global +5.3% +5.7% +4.4% +5.0%

Source: Carat.
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