Ad Agencies Register Concern on Economy

While not in panic mode, CEOs, national buyers closely monitor economy

On an "are-you-worried-about-the-economy" scale of 1 to 10 (10 being a repeat of the 2008 meltdown), agency chiefs are more worried than not that the glitchy economy will hurt their business through the rest of this year and into the early quarters in 2012.

So far, agency CEO and top media buyers are closely watching market indicators, specifically unemployment, consumer spending and confidence, and corporate profits. And while there’s much not to like about many of those benchmarks—on Friday, consumer sentiment hit a 31-year low, capping a week that saw the stock market lurch violently up and down—agency executives dismissed talk that the ad business was in any immediate jeopardy. The general read is that, unlike the great recession of 2008, which ripped a massive hole in the advertising economy, the recent volatility is not being caused by big banking juggling toxic assets, and therefore not as life threatening. Still…

“I have got that sort of sick feeling in the pit of my stomach,” said Bartle Bogle Hegarty CEO Simon Sherwood. “I’d put it at about 7 or 8.”

Some agencies are closely monitoring commodity costs because upswings there create margin pressures on big corporations, which can trigger fee squeezes on agencies. Coca-Cola, for example, is among the biggest buyers of sugar in the world, and the price of sugar has surged in the past year or so.

“The pressure is in the pipe and it’s coming our way,” Sherwood said. “It hasn’t yet impacted on consumer sales, but it’s coming down in the form of some big, big cost increases that companies are having to swallow. That puts pressure on us because obviously they look to at least hold [the line on] what they pay their agencies. And we’re just going to go into the last quarter of the year where we do all our negotiations for the next year. So, it couldn’t happen at a worse time.”

Others are a bit more sanguine.

“This time it’s different," said Bob Jeffrey, CEO, JWT. “Corporate America is in pretty healthy shape with much stronger balance sheets and more cash. They got lean in 2008, and so now they're running more efficiently.”

Nonetheless, Jeffery's still rates his concern a 7.

“The reason I’m giving a relatively high score on the ‘nervousness’ scale is that consumers' confidence is once again rattled," he said. "This means people may get conservative and cut their spending. Cutting spending turns a relatively healthy business situation into an unhealthy one.”

Merkley + Partners CEO Alex Gellert put his concern about the economy at a 5 because, with a roller coaster-like stock market, “there’s no pattern yet.”

“I’m certainly far from panicked, but my radar is up,” Gellert noted. “[Last week] was the first week I turned CNBC on the TV in my office since ’08 or ’09. So, I was definitely watching it a little more closely.”

The challenge, he explained, is that uncertainty about the economy—and the volatility of the stock market in particular—could lead to consumer paralysis, which, of course, would impact marketers and their agencies. “I think what we’re dealing with in terms of risk is potentially a frozen consumer,” said Gellert. “I don’t think we know if in we’re in a recession or not. I don’t think people know whether there’s going to be more unemployment. I don’t think any of that is clear yet.”

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