Economic gloom leads to cuts in ad forecast

By Paul Thomasch

NEW YORK (Reuters) - Another closely watched U.S. advertising forecast was cut on Tuesday, the second in as many weeks, in a signal that the industry has begun to buckle under the weight of a slumping economy.

The latest forecast by Interpublic Group, the advertising services companies, calls for U.S. advertising spending to rise about 2 percent this year, or just over half of the 3.7 percent it had forecast in late 2007.

The revision became unavoidable "because economic expectations have seriously weakened compared to last December and because consumers' disposable personal income had failed to improve in recent months," said Robert Coen, director of advertising for Magna, the Interpublic Group agency that issues the forecast.

The initial forecast for 2009 calls for modest growth of 3.1 percent in the United States.

Magna's Coen was not alone in scaling back forecasts. Citing the troubled economy, another major agency, Publicis Groupe's Zenith Optimedia, also cut its projection last week.

The revisions dampen hope that the advertising market can weather the economic downturn, and suggest that corporations have lowered their overall budgets.

While advertising spending can trail general economic trends, it remains a closely watched barometer of the economy and corporate health. Among other signs, cutbacks in advertising suggest that corporations are delaying product launches and rethinking promotional campaigns.

"This will not last, but for the short term the outlook for U.S. advertising is not good," Coen said in a report outlining his forecast.

He said two factors should keep the advertising market from an even more drastic pullback over the coming months: the U.S. elections and the Olympic games.

Coen noted the worldwide advertising market is holding up better by comparison, with his forecast calling for 4.4 percent growth. That is largely thanks to expansion in countries like China, Russia, Brazil, Poland and India.

Next year, Coen said, the U.S. economy should improve somewhat.

"But it is not likely to spur much expansion in ad spending next year," he said. "There will not be extra Olympic or election ad spending in 2009, and, although the comparisons will be easier, not much improvement is likely before 2010."

(Editing by Leslie Gevirtz)