Ad spending is usually vulnerable when the economy slows or when, like now, there are plenty of unanswered questions about where things are heading. Add to that about $7 billion of cyclical ad spending that occurred last year that won’t return this year due to a slower political season and major international sports events. But Magna is forecasting the ad market will climb 3.4% this year and in its forecast released Monday, it also said that audio advertising will “stabilize” this year.
“There are mixed signals, and a great deal of uncertainty. But based on the latest economic indicators, the U.S. economy is actually in decent shape,” said Vincent Létang, Executive VP of Global Market Research at Magna. He points out inflation is slowly receding, and the GDP growth rate was decent during the second half of last year. “It's fair to say there's a great deal of uncertainty in that environment – but there are also still some drivers to marketing and advertising activity this year, mitigating the impact of economic slowdown,” Létang explained. That includes consumers taking advantage of the inflation cooldown, likely driving retail sales higher, while the auto market is bouncing back, despite high interest rates and consumer anxiety. “Some other industry verticals are expected to grow as the benefit from post-COVID lifestyle recovery, and that's a significant organic driver,” he said.
Magna has scaled back its ad outlook slightly. Its latest 3.4% growth forecast represents a downgrade from its earlier 3.7% growth outlook. But Magna also projects total ad spending will reach a new all-time high of $326 billion this year.
“The economic fundamentals are stronger than 2008 or 2020,” it explains in the new report. It says there is little fear among economists that the endemic inflation experienced in the 1970s, and the brutal interest rate remedies required to curb it back then will repeat themselves in 2023. It also says that corporate America remains healthy, with most big businesses still profitable with manageable debt loads. Magna says that suggests the large businesses that own consumer brands can keep investing in marketing through any future economic slowdown.
“The biggest news is the recovery of the automotive industry. Despite the economic gloom, car sales have started to recover in the second half of 2022, and we anticipate the market will grow by approximately 10% in 2023, leading to a recovery in advertising spend from car dealers and manufacturers,” said Michael Leszega, Associate Director of Global Market Intelligence at Magna. Delayed auto purchases caused by the supply chain issues are fading, Magna explains, and many households can no longer wait to replace their older cars. “Inventory is back and prices have become more reasonable. They will now buy new cars and suppliers will compete to attract returning customers,” Leszega said.
Another factor that Magna’s team of forecasters see working in advertising’s favor this year: media cost inflation is currently slowing down, not unlike the price of eggs or gas. Their analysis shows it stands typically below general inflation and many marketers will see an opportunity to improve return on investment. It points out that on broadcast national television, the media cost to reach a thousand viewers with a commercial rose by an average of 10% per year pre-COVID. But it now anticipates the cost to level for the first time in 15 years, making television relatively more affordable to brands.
There are also new innovations, such as the growth of retail media networks, which Létang said are redirecting billions of marketing budget dollars into advertising formats.
“These are some of the reasons why advertising spending continued to grow in the second half of 2022, despite economic uncertainty, war, inflation, and very high growth comps,” Létang said. “For the same reasons, Magna expects advertising activity to continue to grow, albeit at a slower pace, in 2023.”