Dive Brief:

• U.S. advertisers are pulling back on spending in ways that indicate they are preparing for a recession in the near future, though the downturn may be less severe than initially expected, according to a new report from S&P Global Ratings. 
• Ad spending historically has lagged macroeconomic performance, meaning pullbacks weren’t as apparent until contractions had already occurred. That’s changed as the media buying window has shortened, making ad spending potentially more of a “leading indicator” of where the economy is heading, S&P Global Ratings argues. 
• The evolution in media buying also means ad spend trends are more liable to fluctuate, and S&P Global Ratings said brands may ramp up buying again sooner than anticipated.

Dive Insight:

S&P Global Ratings joins other forecasters in highlighting patchy advertiser demand driven by the assumption that consumers will continue to watch their wallets given inflation and other macroeconomic headwinds. The research upheld that a recession is likely to take shape in the months ahead but will be “shallower” than previously thought. Consumer spending, which is a closer correlative of GDP than advertising activity, will grow 1.2% this year, according to S&P Global ratings. That figure is ahead of the anticipated 0.7% GDP growth rate in 2023. 

Underpinning the firm’s latest analysis is the theory that industry watchers may want to change how they view ad spending as a bellwether of macroeconomic health. Traditionally, drops in media activity have been recorded after a recession is in effect. This is a relic of an era where TV and traditional media were king, with many ad placements bought months ahead of time through the upfronts market. Digital’s ascendance over the past decade-plus — accelerated by the pandemic — could reset the equation while making forecasting more difficult.  

“We believe visibility into current advertising trends is limited as advertisers remain cautious on the outlook for consumer spending and continue to make spending decisions closer to airtime,” said Naveen Sarma, senior director of U.S. media and telecom at S&P Global Ratings, in a statement. “In our opinion, the U.S. advertising ecosystem is behaving exactly as one would expect it would act if it believed that we were heading into a macroeconomic recession.”

Several shifts have resulted in a media ecosystem where ads are purchased closer to airtime. Those shifts include the encroachment of streaming, connected TV and short-form video on linear cable and broadcast, as well the addition of digital components into traditional media areas such as TV, radio and out-of-home. S&P Global Ratings also called out the emergence of retail media as a major digital spending bucket, though the report did not analyze the channel due to a paucity of financial disclosures from retailers on this front.

Overall, the picture for U.S. advertisers could be worse. S&P Global Ratings raised its U.S. ad spending forecast for this year by 20 basis points to 2.8% growth and foresees 8.4% growth in its preliminary 2024 forecasts. Expectations for digital, which encompasses search, social, video and banner advertising, have held steady at 9% growth for 2023, while TV will see an 8.1% decline this year, also essentially unchanged.

Bright spots to look out for include an extended rebound for automotive and travel, two categories that were hampered by pandemic lulls. Meanwhile, insurance, housing and mortgage lenders, financial services and cryptocurrencies will continue to struggle. 

S&P Global Ratings stated that many marketers have learned to invest in brand-building in a downturn to stay competitive following the crucibles of the pandemic and Great Recession. Similarly, high inflation hasn’t created as much whiplash. CPG marketers, for instance, have raised prices, citing factors like higher material costs. That’s allowed them to invest more in marketing.