Art & Commerce: The Long Road Back

The U.S. marketing communications industry, broadly defined, is, by one key measure, within a hair’s breadth of a complete recovery from the Internet bust.

Based on the latest data from the Bureau of Labor Statistics (as seen in Graph 1), total employment at ad agencies, PR shops and an assortment of related companies was 788,600 as of June 30, only 3,000 fewer people than its peak in December 2000. From that pinnacle we saw a 38-month decline, followed, so far, by a 38-month recovery.

The growth rate in recent months has accelerated, a strong indication that a new high-water mark may have been set in July. We’ll know in early September when the statistics next get updated.

The recovery is not the only trend to show persistence. If you look at ad agency data separately (Graph 2), it’s a different picture.

Agency employment, though up in absolute terms over the time span covered by the data, has lost eight share points (nine, at its low point) in the total employment mix. That means that disciplines other than conventional advertising contributed more to the growth of marcom employment since the start of 1990, and are pitching in more to the recovery.

The share gain over the last 18 months may reflect increased employment by agencies of Internet/interactive specialists.

We don’t have data on employment levels specifically covering so-called new media, but anecdotal evidence of this area’s strength is patent. To get a sense of techie employment by agencies, just ask a recruiter. The sector’s hot.

It is reasonable, I think, to use employment data as a rough proxy for general business results. The marcom industry is notably labor intensive. Moreover, there are few labor economies of scale—win a new account, set up another campaign, and you’ll need to hire more people.

At most of these companies, employee compensation consumes over half of incoming revenue—more than all other expenses combined—and is therefore a key determinant of profitability. For that reason, agency managers are reluctant to hire people until an increased volume of work makes them absolutely needed. Therefore, trends in employment are good indicators of business vibrancy, and as of mid-year, the signal is positive.