Media: Good for advertising but bad for the economy?

Analysis

LOST AMONG the economic indicators that last week worried commentators - the rise in unemployment and the rise in wages - was a statistic that should give the Chancellor and all of the commercial media pause for thought.

The Advertising Association announced that in 1997 advertising expenditure hit pounds 13.14 billion. It was the highest figure ever, thanks to inflation, and a rise of 9.3 per cent on the previous year. But most importantly, the figure at last matches the share of GDP taken by advertising in the last year before the last recession in 1989.

In those days of long advertising lunches and expensive Armani suits, advertising accounted for 1.96 per cent of GDP. Last year it reached 1.94 per cent.

The reason the Government should be paying close attention to this figure is that advertising has proved itself repeatedly to be a very responsive indicator of economic health.

After the boom year of 1989, advertising expenditure dropped like a stone for two years, losing all of the growth that had been built up over the Eighties consumer boom. The industry lost over pounds 1 billion in expenditure in just one year, and by the end of 1992 was at the same share of GDP as in 1985. Growth did not pick up until 1993, making advertising one of the first true "green shoots" of recovery.

In the Seventies, advertising spending plummeted even faster after the slow-down caused by the rise in world oil prices in 1973. The only time it bucked the trend was in the early Eighties manufacturing recession. Advertising then kept growing because of a quantum leap in the number of brands and services available to the public as the consumer society truly kicked in for the first time.

But advertising's consistent ability to be an early indicator of economic slowdowns and upturns should make the Government study this year's figures closely.

There are structural and cultural reasons for advertising's qualification as an early indicator.

One is simply that finance directors frequently regard their marketing director's demands for money as a marginal expenditure - a variable cost that can be dealt with when actually making the product is paid for - it is frequently one of the last budgets of the year to be signed off.

Furthermore, the "product" that is advertising - the actual advert - can, if you want, be quick to produce. Newspapers' advertising agencies have been known to produce a TV advert in an afternoon when a big book serialisation or exclusive scoop has to be revealed.

So you do not have to order thousands of widgets from China months in advance to up your ad spend. Equally, if you've committed no money to advertising other than getting some story boards done by your agency, the advertising is easy to pull at the last minute.

The media market in the UK - and media expenditure greatly overshadows outlay on the actual production of ads - is one of the most flexible in the world because of ITV's antiquated trading system. It is geared to allow advertisers to come on air at the last moment if they so wish, and so media spend is again something which companies do not have to plan years in advance.

Having such a strong daily newspaper market, where lead times for ads can be as short as a few hours, also means that a big chunk of advertising spend is very flexible. Between them, television and press display advertising account for pounds 10.6 billion of the pounds 13 billion total.

It is also in the nature of the advertising service industries to adapt to changes in marketing strategy - at least partly because marketing directors only stay in their roles for an average of 18 months. Advertising and marketing are of course obsessed with market research and so are highly responsive to changes in market demand.

What the Chancellor, and the rest of us in the media, must hope is that in 1998 the industry just keeps on growing.