Wednesday, July 1, 2009

Economics 01/07/2009: UK Ad Spend, QNA & US Consumer Confidence

Per Adweek, advertising spend in the UK fell 4% to £18.6bn in 2008. All media experienced declines, apart from internet and cinema fell, according to figures released on 29 June by the Advertising Association. The drop compares with a rise of 4.3% in 2007. Press (newspapers and magazines) was the biggest spending category at £6.8bn in 2008, down 11.8% yoy. TV was the second-biggest spending category (£4.4bn), down 4.9%. Internet spend was third at £3.6bn up 19.1% on 2007. Radio was down 8.5% to £488m, outdoor and transport fell 3.8% to £1bn, while cinema rose 1% to £205m. Three things are worth noting in these figures:
  • As consumer confidence and spending collapsed, overall advertising spend stayed surprisingly firm;
  • Internet has probably benefited from substitution from costlier print and TV/radio to cheaper on-line advertising. This is potentially a 'recession factor' (in a recession, such substitution is usually a temporary phenomena - once growth returns, the old spending/consumption patterns return rather swiftly), so internet advertising will need to look at adopting some new proposition for selling once the growth cycle restarts;
  • The figures do not specify what share of spending contraction can be attributed to lower costs of advertising, in other words, we do not know whether the fall was due to declining client activity or due to improved cost of advertising.

More on yesterday's Quarterly National Accounts data. Here is the snapshot of the widening GDP/GNP gap in Ireland - a clear sign of rising weaknesses in domestic sectors:
Note the trend peak in Q1 2005 and the absolute peak in Q4 2006. The first one corresponds to the end of post 2001-2002 correction and the latter to the SSIAs craze sweeping the nation.

Next, to the sectoral contributions to GDP.Our earnings from abroad are negatives and rising in absolute value - those Bulgarian and Romanian properties we've snapped up. Agriculture is overall the least important sector when it comes to GDP contributions. It used to account for 2.54% in Q1 2003, it accounts for 2.51% today (an increase from 2.33% a year ago). I wonder if that yoy increase captures the pumping of dioxins subsidies to pork producers. That was something, as the gravy trains go: Irish pork industry is worth €385mln pa, but in December last, the Government doled out €180mln to the industry in compensation for a one week stoppage (worth just €7.0mln in economic losses).

Then come Public Administration (up slightly from 3% an year ago to 3.25% this Q1, with another pesky side to it in the form of continued inflation in the sector).

Building and construction fell from a high of Q1 output of 8.93% of GDP back in 2006 to 5.99% in Q1 2009.

For what it's worth as an intellectual exercise, were we to invest all overseas property money back in the country, while shutting down:
  • Option 1: Agriculture, Building & Construction, and Public Administration all together, we would be still 6% of GDP better off;
  • Option 2: Agriculture, Public Administration and all Taxation, we would be 1.9% of GDP better off.
Of course - this is just an accountancy exercise, not a real economic policy, but it does put into perspective the fact that we have a sector accounting for just 2.5% of the economy and yet commanding its own Department with thousands of bureaucrats in employment...

Expecting the expected: US Consumer Confidence has taken a fall, once again, proving that the previous 'rebounds' were just a temporary mathematical correction before new jobs losses and continued weakness in the economy feed through to consumer sentiment. US consumer confidence fell to 49.3 in June from a downwardly revised 54.8 in May, the Conference Board reported Tuesday. Following a large confidence jump in May, consumers grew more pessimistic in June about their present and future. The present situation index declined to 24.8 in June from 29.7 in May, while the expectations index fell to 65.5 from 71.5. Note that the change in expectations was largely in-line with current conditions move, signaling that the US consumers are not exactly treating the current deterioration as temporary decline on significant May improvement.

A lesson for Obama? Don't give tax breaks to the elderly and the poor - give them to the middle classes. Last month improvement in personal income in the US was almost entirely due to Federal tax rebates to the elderly and the poor. This might be fine in the economy that is running at around trend growth, where consumption of non-durables is a problem, but it is not as efficient as a middle class tax break in the economy where precautionary savings are a problem.

A lesson for Ireland? Given that our own economic conditions are much worse than those in the US, and given that the government tax policies in Ireland are intirely internicine, I doubt we can expect significant gains in consumer confidence in months ahead. Instead, we should expect a new wave of layoffs to hit in Autumn 2009 and then again in January 2010.


MK1 said...

Hi Constantin,

The contribution of our Agri/Food sector shouldnt be belittled. There are numerous knock-on 'value chain' effects and its gross contribution to our GNP measured in both monetary and employment terms is probably a lot more than 2.5%. eg: services supply Agri, as does 'industry'.

Sometimes the slicing and dicing and measuring of whats going on can obfuscate and mask whats really happening on the ground. I would hazard a guess that Agri/Food is contributing far more than 2.5%. Perhaps a more detailed treatise/study is required or has been done.


Philip said...

I'd be also interested in seeing what proportion of local food retail it impacts as well.