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A Strong Finish To 2022 Begins Now – And May Come Down To A Few Advertiser Categories.

For radio managers looking at their 2022 budgets, the halfway point to the year is bringing a lot more uncertainty than usual. Forecasters are still projecting growth for radio this year – Zenith said last week radio ad revenue will climb 4% year-over-year while Borrell Associates said local ad revenue for radio will increase 5.4%. But with gas prices soaring, inflation showing no letup and some economists predicting a recession, sales reps may want to look at those ad categories that typically pull back the least.

Corey Elliott, Borrell’s Executive VP, Local Market Intelligence, says he has been getting a lot of recession-related questions in recent days. Under the notion that the past may help guide what may be coming, he looked at which ad categories bounced back the quickest in the last recession and which took the longest. Out of 63 different categories, his review shows 17 bounced back within a year. Another four took two years, and five took three. Grocery stores, pharmacies, bars and restaurants are the best bets after a recession, while furniture stores, department stores, and household appliance stores tend to be laggards.

“If a sales team can lean away from selling products and into selling a marketing strategy – that’s what local businesses of all kinds are looking for,” Elliot says.

B. Riley Securities media analyst Daniel Day told clients last month that the second quarter outlook from some radio executives suggesting the industry is at the beginning of an ad spend recession may be overblown. “We believe the reality is more nuanced,” said Day. In a report he said that although national ad revenue during April was “softer than expected,” he said he has heard from companies such as iHeartMedia that they have experienced a “significant acceleration” in national business for May and June.

Wells Fargo Securities analyst Steven Cahall has also pointed to some “mixed data” and similarly concluded it is “too early to call it an ad recession” based on the data points he has seen. “We think consumer strength is trumping economic risk in the eyes of most marketers,” he said in a note to clients last month.

Coming out of the 2020 pandemic lows, double-digit increases were relatively easy to achieve last year. Not just for radio, but in all parts of the economy. The UCLA Anderson update on the U.S. economy says that even with global impediments, it believes an economic slowdown is the most likely scenario for the next few months – not a recession. However, according to UCLA Anderson Forecast Senior Economist Leo Feler, author of the June forecast, there is no doubt that parts of the U.S. economy are abruptly slowing, as waves of economic shocks continue to cause damage.

"We expect growth to slow to below two percent," Feler says. "Only by the end of 2024 do we expect GDP growth to pick back up."

MoffettNathanson analyst Michael Nathanson says the past two years have been “especially unique” for the U.S. advertising market, as the ad spend to GDP ratio actually increased during the COVID-19-induced recession in 2020, and then accelerated in 2021.

“We do not believe these advertising increases are sustainable, especially if corporate margins are pressured from rising inflation and the return of travel and entertainment, real estate, and other expenses as the economy reopens,” Nathanson wrote in a review of the ad market. He predicts total ad spend will increase three percent this year but radio billings will drop by a similar rate as marketers focus less on the so-called top of the funnel goals like awareness where radio excels. “Advertising demand is cyclical and should reasonably fall during times of economic weakness,” he noted.

What is happening with advertising is a global phenomenon, too. The World Bank cut its outlook for global economic growth to 2.9% from last year’s 5.7%. It is those sort of moves that led IAB Europe Chief Economist Daniel Knapp to tell Digiday that most forecasts are “on quicksand” right now.

But how any impact plays out for radio on Main Street may depend on where the station is. Borrell said this week that its research shows wide swings between markets. It estimates local ad sales will jump 29% this year in Baton Rouge, LA while in nearby New Orleans it is forecasting a 7.6% drop.

“We’re seeing a readjustment after bouncing back so fast in ’21 in some places, and like in other places things are finally kind of hitting their stride,” said Elliott.

Some analysts are already looking ahead to 2023. Morgan Stanley media analyst Benjamin Swinburne said Friday that he thinks there will be a “mild recession” in the coming months and as a result he lowered his outlook for ad spending for the coming year regardless of how strong radio listening remains.

“Current trends remain robust across out of home, the ad agencies, and audio,” said Swinburne in a report. “However, we see rising risk that ad budget growth will slow and perhaps dramatically in ‘23.”

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