• by Joe Mandese , June 15, 2006

While a single quarter doesn't a trend make, it does carry some weight in economic circles. So a major source for ad industry economics is keeping a close watch following results from the first quarter of 2006, which show advertising expenditures flat with U.S. economic growth. "Adex has always exceeded the GDP," Steven Fredericks, president-CEO of ad spending tracker TNS Media Intelligence told MediaDailyNews earlier this week, referring to the contraction for advertising expenditures and the acronym for the gross domestic product. "That didn't happen in the first quarter. It came in at the same rate of growth as the GDP and we haven't seen that in quite a while."

Fredericks said GDP estimates are a key component of TNS MI's method for forecasting ad spending, and its model assumes at least a slightly greater rate of growth for the ad industry. When that didn't happen during the first quarter, it caused the company to rethink the rest of the year, shaving a half a percentage point off its estimates for 2006 measured media spending.

TNS MI had been projecting a 5.5 percent rate of expansion for U.S. ad spending during the first quarter, but it actually came in at 5.2 percent, the same rate as the GDP. On the plus side, Fredericks noted that is a higher rate of growth for the U.S. economy than most economists had been projecting. On downside, he said it raises a question about the vitality of the advertising economy.

In fact, some industry insiders believe macro economics are a key factor influencing the current lackluster upfront network TV marketplace, where some major networks are seeing cuts in their CPMs, and overall budgets are expected to be down, with plenty of money held back for the scatter marketplace. Part of that is due to natural cyclical corrections in the network TV economy, but a big part, says a top TV sales strategist, is uncertainty among corporations over the economy as well as the direct impact of higher oil prices.

Beneath those macro factors, Fredericks says there are some serious secular concerns among key advertising categories, especially the automotive, telecommunications and retail categories.

"We expected to see some impact among department stores and telcos because of consolidation in those industries, but we really didn't anticipate cutbacks by automotive. That certainly had consequences for newspapers, and it is having an impact for other media," he said.

A higher-than-expected boom in political ad spending has helped defray the impact of those categories on some media, particularly local television, but Fredericks says TNS MI will keep a close watch on the GDP during the next few quarters.

"We'll be very interested to see what happens in the second quarter. Right now it looks like it might be an aberration," he said of the relationship between GDP and advertising growth.

He said that about 25 percent of TNS MI's forecasting model is based on the GDP. Other leading industry forecasters factor U.S. economic growth into their outlooks, and another influential one, Universal McCann Director of Forecasting Bob Coen is poised to reveal his midyear update on June 28.