Economic Outlook: Second Quarter Update for 2011
Back in April of 2011, we reflected on first quarter economic conditions and their effects on the U.S. ad economy versus those for the previous 12-month period. In keeping with prior reports, we also provided perspective on what we believe was in store for the remainder of the current fiscal year. In June 2011, the U.S. Congressional Budget Office (CBO) published its updated Economic Outlook for 2011 to 2021. IPG’s Magna Global also released its updated U.S. Ad Revenue Forecast for 2011. Following is an overview of what’s expected for the advertising and the larger U.S. economy during the remainder of the current calendar year.
Looking ahead, the U.S. CBO appears to be somewhat more bullish in its forecast for inflation-adjusted GDP long-term, projecting an annual average growth of about 3.6% (up from an earlier 3.4%) for the period 2013 to 2016. For the period 2017 to 2021, their growth estimate remains essentially unchanged at 2.4%. Nevertheless, by the end of 2011, the CBO projects real GDP to decline significantly to 2.3% (down from an earlier 3.1%). Part of this decline is likely due to several factors, chief among them—the fallout from early-August’s U.S. Congressional debt ceiling debacle, the European financial crises and grim reports on the financial health of certain large U.S. banking institutions. In addition, while declining somewhat in official numbers from 9.1% to 8.9%, real unemployment (including workers who are under-employed and those who have given up looking for a job) remains stubbornly high (upwards of 22% if calculated similar to the way in which it was in the early 1990’s). While the cumulative budget deficit projection for the remainder of the year has declined from $1.548 trillion to $1.284 trillion, the near-term lookout is a not a rosy one.
Various economic challenges still persist both here in the U.S. and around the world. The depressed housing market, unemployment and fiscal retrenchment have all played a part. In light of this Magna Global has revised its forecast downward from 3.1% to 2.9% in 2011. Overall, this growth equates with $173 billion in ad revenue through the remainder of this year.
One of the few bright spots in the economic gloom is national online advertising comprising digital display, online video, social media and paid search. Magna Global believes these media will outperform previous expectations increasing to about $30.1 billion, up by almost 16% from 2010 levels.
Magna has also forecast greater strength in national mass media, i.e., network television and cable. National TV is expected to grow by almost 8% over last year, up from a previous estimate of just over 6%. Nevertheless, the major areas of weakness are more on the local level—in newspapers, radio and outdoor advertising. In addition, direct media has been negatively impacted due to sharper than anticipated declines in directories and direct mail.
Gugelplex TV now believes that we are further away from recovery mode than we were in April 2011. The usual key performance indicators are not performing well enough to buy into the public relations spin. The already weak U.S. recovery was negatively impacted by recalcitrant Congressional Republicans who decided that playing politics was more important than the efficacy of U.S. credit worthiness during the early August debt ceiling escapades. Partly as a result of this, the U.S. continues to face profound budgetary and economic challenges as exhibited in recent turmoil in the financial markets both in America and overseas. Gugelplex TV believes that we may be in store for more of the same as the recently established Congressional “Super-Committee” haggles over what cuts to make in the future and where. While the Olympics and the Presidential elections will likely bolster the ad economy come 2012 to 2013, we remain bearish relative to U.S. economic conditions over the next six to twelve months.
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