By: E&P Staff It looks like 2005 ad spending is trailing GDP growth which is "unusual this late into an economic expansion," said a new report from Merrill Lynch. Excluding direct mail, the research firm estimates 3.3% ad growth for 2005. Even adjusting for the political and Olympic season, ad spending still lags GDP growth.
Analysts with the research firm believe ad growth is falling behind for a number of reasons. Low inflation is capping any increases in ad budgets since companies have "less wiggle room in protecting their own margins." Companies are placing advertising outside of traditional media. And they are probably spending in areas -- like product placement and viral marketing -- that is not typically captured by ad spending estimates.
Newspapers will likely suffer. And their stocks, which are "in the dumps," is hard to justify, said the report. "As the competitive battle moves online, newspapers will likely find it hard to scale, and even as they successfully defend their local market share, the economic repercussions of the shift online are still likely to take their toll," the report concluded.
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