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Advertising agency indicator shows global slowdown in corporate spending growth

This ad agency indicator shows a slowdown in global corporate spending growth

Gdp ad agency revenuesEnlarge
This graph shows organic ad agency revenue growth relative to the US GDP. (Business Insider/Courtesy)

WPP, the world's largest ad agency holding company, reported earnings this morning. While its total growth is healthy — revenues up 7.6 percent to £2.392 billion — its organic, like-for-like growth excluding acquisitions, went up only 4 percent.

That's a warning signal for GDP growth generally, as I've argued previously. Revenue at advertising agencies tracks GDP growth broadly, in an exaggerated way. When ad revenue growth softens, it can be an indicator that corporations are expecting slower sales, because many companies pin their ad budgets as a percentage of total sales and reduce marketing spending if they expect sales to slow.

WPP was the last of the major holding companies to report, and they all — Publicis, Omnicom, and Interpublic — cited declining organic revenue growth.

At WPP back in Q4, organic growth was a robust 5.3 percent, and that was down from Q4 2010 when the company grew fiercely, at 8.5 percent. Some of that is due to tougher comparables. It was easy to look good immediately after the recession. Not so easy to beat 2011.

But some of it is just underlying weak growth in the ad economy. Buried in WPP's disclosure is a datapoint that might chill the heart of an economist: Like-for-like growth in the U.S., WPP's biggest market, was just 1.4 percent in Q1. That from a company whose agencies (Ogilvy, JWT, etc.) serve big clients such as Walmart, Nestlé, Ford, and Coca-Cola.

Yikes.

Here's our totally unscientific chart of agency revenue growth vs. GDP. Don't take it seriously; it compares agencies' year-on-year growth to GDP's sequential growth (apples v. oranges, in other words). But still, the pattern is obvious.

It's especially worrying when you consider that the agency numbers are final, whereas the Bureau of Economic Analysis' GDP number is currently just an estimate. It won't produce a final "real" number for several weeks.

 

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Original Source URL: 
http://www.businessinsider.com/danger-this-ad-agency-indicator-shows-global-slowdown-in-corporate-spending-growth-2012-4

http://www.globalpost.com/dispatch/news/business/120427/business-insider-danger-ad-agency-indicator-shows-global-slowdown-corp