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Editorial & Column


Advertising: The Perfect Bellwether


July 1, 2004
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

We’ve said it before, and we’ll say it again. Never mind Planning Board figures and all the rest; if you want to know how the economy’s doing, take a look at advertising budgets. If they are up, the economy is picking up; if they’re down, it isn’t.

Last week, the Calderon administration made its best effort to try to convince us that the island is in the midst of an economic expansion, reiterating earlier Planning Board projections of overall economic growth of 2.9% for fiscal year 2004, which ended yesterday.

Indeed, many of the indicators toward the end of 2003 pointed to a more robust recovery earlier this year. But it hasn’t happened. The government can say what it wants, but ask businesspeople if they had increased sales in the first half of 2004, and they’ll give you a resounding "no."

Despite a notable acceleration in public-works construction, which is typical of an election year, the unemployment rate continues to hover at around 12%, and spending by consumers and businesses has remained flat.

The standstill in the economy has been reflected very clearly in the advertising and media industries.

Predictions that a modest local economic recovery starting earlier in the year would fuel increased consumer spending, which in turn would grease the wheels for increased investment in the advertising and media industries, simply haven’t panned out.

For the first five months of the year, local advertising investment remained virtually flat compared with the same period last year, which itself was a bad year.

In fact, with the exception of newspapers, which registered 11% growth in advertising investment for the first five months of 2004, all media categories remained flat or went down considerably. Television and magazines showed meager growth of 0.8% and 1%, respectively, while cable TV and radio registered whopping declines of 18.2% and 21.5%.

One of the reasons why advertising is such a perfect bellwether to measure the pulse of the overall economy is that companies typically budget their advertising spending as a percentage of sales. If sales of goods and services are up, advertising is up. If sales are down, so is advertising.

In fact, in down cycles, advertising is one of the first expense items businesses cut in an effort to control costs. Shrinking advertising budgets are a telltale sign of a downturn in sales, and vice versa.

In addition, since an agency typically doesn’t have more than one account per industry in its client portfolio, advertising agencies handle a broad spectrum of companies in many economic sectors, making them a perfect barometer for the overall economy’s performance.

This year, the woes of the advertising and media industries due to a lackluster economy have been compounded by the fact that election-year advertising spending had been held up until today.

The new local public-campaign-financing law provides each of the three gubernatorial candidates an initial allotment of $3 million and a matching-fund provision of up to $4 million per candidate. The quantity to be received from the matching fund will depend on the accumulated private donations in the party and candidate accounts on July 1. Therefore, in order to maximize the funds to be matched with public money, the campaigns had an incentive not to spend any money on advertising before today.

All told, as much as $49 million may be spent on political campaigns in the next four months, with experts forecasting that as much as 37% of that will go to media placement.

That money is certain to give the local advertising and media industries a boost during the next four months. But it will be no substitute for finally having a fully recovered and growing economy.

This Caribbean Business article appears courtesy of Casiano Communications.
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