Forecaster Trims Prediction for Ad Spending

A leading forecaster of advertising spending is reducing its forecast for this year, citing factors ranging from rising oil prices to European debt woes. But the reduction amounts to a bit, a tad, a trim — much less than the downward adjustment recently made by another forecaster.

The new forecast from ZenithOptimedia, part of the Publicis Groupe, calls for worldwide ad spending this year to increase 4.1 percent compared with last year. The previous forecast was for a gain of 4.2 percent compared with 2010.

By contrast, the GroupM unit of WPP sliced an entire percentage point off its growth-rate forecast last week. The new GroupM prediction is for a gain of 4.8 percent rather than a gain of 5.8 percent.

There are a couple of other relative high points in the new ZenithOptimedia forecast, which is to be released just after midnight (London time) on Wednesday, or just after 7 p.m. (Eastern time) on Tuesday.

The forecast calls for total worldwide ad spending this year to reach $471 billion, matching the peak level previously reached in 2008. There had been some speculation that it would take many years for global ad spending to achieve that high-water mark again.

And the ZenithOptimedia forecast also calls for “more robust growth” in ad spending in 2012 and 2013.

The slight reduction in the growth rate for 2011 is being attributed to revisions in ad spending totals in regions like North America and Western Europe.

The forecast for growth in North America, for instance, is being trimmed to 2.3 percent versus the previous forecast of 2.6 percent. And the forecast for growth in Western Europe is being cut to 3.3 percent compared with the previous prediction of 3.5 percent.

Another bright spot, relatively, is Japan, where the effects of the earthquake and tsunami on ad spending will be less disruptive than the forecasters had feared. Ad spending in Japan will decline 2.4 percent this year compared with last year, according to the forecast; the previous forecast called for a decline of 4.1 percent.

For 2012, ZenithOptimedia said, worldwide ad spending will increase 5.9 percent from this year. The agency’s previous forecast called for a gain of 5.8 percent.

And for 2013, worldwide ad spending will rise 5.6 percent from 2012. The previous forecast was for a gain of 5.5 percent.

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"Job Killing" Government Spending

A Bloomberg poll, discussed in this news article, indicates that 55% of respondents believe that "cuts in government spending and taxes would be more effective at creating jobs than maintaining or increasing government spending." I am quoted in the article as follows:

The question is confusingly formulated, because economists usually think of tax cuts and spending increases as part of the same stimulus-based approach, not as opposing approaches. But at root, the results appear to indicate that most Americans think cutting spending, not increasing it, is more likely to create jobs.

But that's almost the opposite of what most experts--on both sides of the political divide--believe. "That wouldn't square with the way we normally think about economic activity in a depressed economy," Andrew Samwick, a former chief economist on President Bush's Council of Economic Advisers, told The Lookout. When the economy suffers from a lack of demand, as it does now, Samwick explained, most economists think increasing spending is the more effective way to generate that demand and get things moving again.

Why has the opposite view begun to take hold? In part, Samwick argued, it's thanks to the efforts of congressional Republicans, who want budget cuts and lately have hammered home the view that government spending has stymied growth. "You have the Speaker of the House talking about job-killing government spending," said Samwick, now a professor of economics at Dartmouth College. "But they have not been tasked with making clear exactly how the government is killing jobs."

If the conjecture means that employment goes up when government spending goes down, you would have to persuade me that a person is more likely to be employed if the government stops spending money to purchase things that he would make if employed.  That makes no sense. 

If the conjecture means that employment goes up when there is a revenue-neutral reduction in government spending, then that could be true, depending on whether the government spending or the private spending that might occur with a lower tax burden is more labor-intensive.  But that hardly seems like the context for the question.  Alan Blinder provides a more articulate response to the conjecture in yesterday's Wall Street Journal.

I am not saying that any government spending is justified merely for the sake of employing labor and capital.  It is justified if it serves a need that society has and that the government is typically responsible for meeting.  In that case, the current economic environment is one in which the need could be met on the cheap, precisely because the costs of employing labor and capital are lower than they are likely to be in the future.  This is nothing new -- it is what I have been saying for nearly 3.5 years.

 

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