All eyes are on Wall Street and Washington as government leaders seek to come to terms on a bailout of the much-endangered U.S. economy. But well before the credit crisis reached these proportions Americans were cutting personal spending down to necessities, and marketers were cutting their spending in response.

Just how much becomes apparent looking at the latest data from TNS Media Intelligence on ad spending for the second quarter and for the full first half of 2008.

Total ad spending on all media for the months April through June fell 3.7 percent. That's the steepest decline since 2001, during the worst of the dot.com bust that began in late 2000.

The harsh second quarter had the effect of dragging down total first-half 2008 spending, which came in at a minus1.6 percent compared to the year-earlier period. First-quarter spending was up a modest 0.6 percent, following a year that ended just about flat at 0.2 percent growth.

"The cause for the decline traces to a combination of cautious marketers and an economy that was heading south in the second quarter," says Jon Swallen, senior vice president of research for TNS.

"The economic factors in play here were the sudden run-up in energy prices, which caused an immediate slowdown in discretionary consumer spending."

Marketers were already on the lookout for any signs of a weak economy, notes Swallen. "That was their sign. The response to that slowdown was an equally sudden slowdown in ad spending."

Swallen doesn’t see a turnaround in ad spending until consumers resume spending. "That will be the sign to marketers that the environment has stabilized and that it’s time to get back in the game, to resume advertising and marketing at higher levels.

"Is it three months from now, six months, or nine months? I don’t know. But we've seen in the past month how quickly things can turn, for better or for worse."

All forms of ad-supported media suffered declines from first quarter to second, even the internet, which over the first half saw its pace of growth fall to 8 percent. Web ad spending has seen double-digit growth each year since coming out of the dot.com bust.

The slowdown in ad spending hit local media hardest, and all saw declines compared to the first half of 2007. Local newspaper advertising was off 7.1 percent, spot TV down by 4.4 percent, local radio off 7.5 percent and local magazines down 2.8 percent.

The best performer over the six-month period was syndicated TV, which saw gains of 10.2 percent, much of that the result of the writers' strike, as advertisers fled from network TV and the flush of reruns.

Cable was the only other gainer in the TV category, up 3.1 percent.

Other gainers were Spanish-language magazines, up 7.1 percent, Sunday magazines, up 4.8 percent, network radio, up 3.4 percent, out of home, up 1.8, and free-standing inserts, up 2 percent.

Read the complete interview with Swallen, which is posted below the chart on first-half spending.

Jon Swallen, senior vice president of research for TNS Media Intelligence

Why the steep decline from first to second quarter? Where was that felt the most?

I think the cause for the decline traces to a combination of cautious marketers and an economy that was heading south in the second quarter. The economic factors in play here were the sudden run-up in energy prices that caused an immediate slowdown in discretionary consumer spending. Marketers were already cautious and on the lookout for any signs of a weak economy, and that was their sign. And I think the response to that slowdown was an equally sudden slowdown in ad spending.

In terms of media, the pain was pretty widespread. It was comparatively worse for print media, particularly for newspapers. Radio media is still soft, television media was weaker in the second quarter than it was in the first. So it was pretty much an across-the-board event, it wasn’t’ isolated to a particular medium.

On a category basis, most pronounced cutbacks were in the auto sector, again an outcome of the fuel situation and the impact it had on new car sales. A lot of marketers concluded it’s not a good environment right now to be advertising and marketing and for driving business. They said, ‘let’s sit on the sidelines and wait and see what happens, and then regroup.’

When is it going to turn around?

I think even before the recent mess on Wall. St, it’s significant to note that ad spending had been declining for several months. That points to larger economic conditions as a driving force.

The answer is dependant on when consumer spending behavior improves. I think that will be the sign to marketers that the environment has stabilized and that it’s time to get back in the game, to resume advertising and marketing at higher levels. Is it three months from now, six months, or nine months? I don’t know. But we’ve seen in the past month how quickly things can turn, for better or for worse.

What impact on the media economy do you anticipate from the banking/credit mess we're seeing now? How sustained will that impact be?

I think there are two ways of looking at it. One is, what’s the impact on the financial services sector, and secondly, what’s the impact on the general media economy?

To the first point, interestingly, the indications are that financial service companies have continued to advertise at fairly stable levels. The messages have changed, but certainly banks have had a need to advertise to hang onto consumer deposits. In the short term, financial service advertising is okay, but longer term the possibility of industry consolidation, particularly in banking segment, raises the prospect that down the road total ad spend could contract as a function of fewer companies in the marketplace. But that’s a longer term thing, and it’s harder to predict given all the uncertainties that exist right now.

For the larger media economy, the significance of the financial crisis is the impact it has on consumer psychology and spending behavior. It’s not a real positive environment and you’re worried if you’ll have any money left. Marketers see consumers tightening the hatches, and just because you advertise doesn’t necessarily mean a consumer will purchase.

What do you anticipate for 2009?

I don’t know, I mean we don’t make forward forecasts. But generally speaking, I won’t give you a precise number, but I think 2009 will start off a little difficult.

For one thing it’s an odd year, so there’s no election or Olympics. Again, I think it very much depends on the overall economy. I think the larger story that will play out in 2009 will be in select industries such as pharmaceuticals or food products, depending on which party’s running the country. The prospects of increased or decreased government regulation in certain sectors and the implications that might have for advertising in those sectors.

Beyond the obvious financial services, the pharmaceutical industry has been under increased scrutiny, and so have food marketers in respect to advertising to children. Credit card companies have been under scrutiny for their ad practices, so there are a number of ad categories that are anxiously looking forward to the outcome of the election in November.

What's ailing the media economy generally? Is it the weak business economy, the shifting of dollars to the internet, etc.?

If you look at the overall picture, the fact that ad spend is down 3.7 percent in second quarter, the largest quarterly decrease we’ve had since 2001, that speaks to widespread cutbacks by many advertisers in many categories across many media. The fact that all the media we tracked had weaker results in second quarter than in first, that’s the silver bullet that shows this is a widespread phenomenon. The turf has gotten more dangerous and harder to navigate for everybody.

If you take out local newspapers and radio, how bad off is the ad economy?

We’d still be in the red. Television is still the plurality of total money spent, and it’s in the red for the first half and second quarter. Magazines are the second largest sector, and they’re in the red. The media that’s been positive are internet and outdoor, and together they’re less than 10 percent of total measured ad spend. So if 90 percent is down, that 10 percent won’t offset it.

What's the most important thing you see in the second quarter numbers?

The biggest thing is the widespread pull back across all media and a broad range of categories, again indicating the depth of this advertising recession we’ve entered into.

The most surprising thing, when I look beneath the surface, was how well financial service categories performed. Granted, we’re talking about second quarter, before all the insanity of the past month, but even then there was still lots of concern over banks and mortgages. And in fact they had pulled back somewhat in fourth quarter and first quarter. So even though business conditions got a lot worse in second quarter, financial service advertising was still flat in a down market, which surprised me.