The stock market's ascent has been fueled in part by spirited gains in corporate profits, reflecting the downsizing and economizing that companies have undergone since the early '90s. In other words, profits go up when costs rise more slowly than sales. But in business, as in toothpaste, there's only so much you can squeeze out of the middle.
Sooner or later, you have to sell more stuff to make more money. That is a primary thesis underlying the latest forecast for the advertising business from investment-banking boutique Veronis, Suhler & Associates, whose 11th annual Communications Industry Forecast has just been released. The need for companies to sell more goods or provide more services virtually dictates an increase in ad spending. Extending this back to Madison Avenue helps explain the strength of agency financial results. Projections show the strength persisting.
Still, agencies have fewer opportunities for middle squeezing than do most of their clients, which means their own margins may be close to topping off.-Alan Gottesman (westendal pobox.com) is principal of West End Consulting.
THE GOTTESMAN FILEVeronis, Suhler's latest Forecast sees advertising growth persisting into the new century, with the rate of increase following an odd year/even year yo-yo pattern.
.....Year .....Ad spending .....Growth rate
.....Dollar figures in billions. Source: Veronis, Suhler