In times to come, this period may well be termed the phoney recession. Undeniably, there’s an air of unreality about it. On the one hand, evidence of stable consumer prosperity is all around us. Interest rates and inflation remain firmly stationed at historic lows, providing the backdrop to a housing boom and unprecedented activity in the high street. Any estate agent or shopkeeper will confirm as much. Jobs, apparently, are still abundant.
On the other, the portents of gloom in the business community are inescapable. Six months into 2001 and there are still precious few signs of a recovery in the world’s motor economy. Yes, there have been radical cuts in US interest rates – which admittedly take months to filter through; but Wall Street share prices – often credited with a predictive quality – remain unflinchingly depressed. There’s little cause for optimism elsewhere, either: Japan, in recession; Asia and continental Europe facing up to a slowdown. If nothing else, the speed with which this gloom has been disseminated demonstrates the growing relevance of globalisation.
Outside, that is, the UK. Here, the most worrying omen by far has been the deteriorating vigour of advertising. Despite the heroically upbeat tenor of the IPA’s Bellwether report earlier this year, there is little doubt the patient is suffering badly. Zenith, generally pretty reliable in these matters, has recently slashed its forecast to about 1.4 per cent growth: an actual decline after the rate of inflation is taken into account.
Anecdotal evidence of a downturn in spend abounds. Granada chairman Charles Allen’s misjudged letter to Tony Blair says virtually everything that need be said about the parlous state of television advertising. But that’s been known, or guessed at, for some time. A 20/25 per cent drop in ITV advertising revenue has, in any case, to be viewed in a mitigating context. First, because of a remarkably distorted performance in 2000 – in short, dot-commery. Second, because of the progressive impact of a secular trend whereby traditional advertisers such as Nestlé and Procter & Gamble are diverting their traditional television advertising budgets into other media.
Less comfortable for the marketing community as a whole must be results such as those for Trinity Mirror last week, which show that the advertising blight has spread to other sectors.
At the moment, the issue is almost entirely one of confidence, or lack of it, in the business community. The question is, will the malaise be contained there, or spill over to infect the boisterous consumer mood? Much depends upon timing. Although an advertising downturn is usually a harbinger of recession, it is not infallibly so. In 1998, for example, the business community was momentarily rattled by the Eastern crisis; as events proved, it had almost no long-lasting consequences for the world economy. The key word, of course, is ‘momentarily’. The longer the pessimism goes on, the less the possibility of containing its propagation.
Major industry figures, such as WPP’s Sir Martin Sorrell, now see little light at the end of the tunnel before the beginning of next year. Let’s hope for everyone’s sake that Gerald Levin, chief executive officer of AOL Time Warner, is right when he detects the first signs of stabilisation in the advertising and media economy.