The ad economy seemed to be steaming along just fine until at some point in 2007 it seemed to slow, and it seemed to slow even more as the year went on. By fourth quarter, it was running in the negative, with ad spending a tad below the same period a year earlier. Certainly, some of this reflected just how strong 2006 had been. But there was also a growing uncertainty among marketers about the direction of the economy with the ever-worsening subprime mortgage meltdown and rising gas prices. So when the final numbers came out yesterday from TNS Media Intelligence showing near-flat growth in ad spending for 2007, it was not entirely a surprise. And all this raises the obvious question: When will it turn around? For an answer, Media Life turns to Jon Swallen, senior vice president of research at TNS Media Intelligence. Swallen talks to Media Life about what's behind the slowdown, what he sees for 2008, and the most promising ad categories.

In sum, why the slowdown now, after these several strong years in ad spending? Is there one single cause?

There’s not one single cause, I think there’s a combination.

The big theme here is the general economy and some of the ongoing uncertainly on the direction it will take. Marketers have to plan for the future and make decisions on how much to spend a couple of months in advance.

There’s uncertainly about the economy and implications on how that will affect consumer spending, corporate profits, etc., along with weaknesses in specific sectors like automotive and the housing market, which has an effect on real estate advertising, furniture stores, etc.

You wrap all that up together and you’ve got marketers acting in a more cautious manner and holding back on ad spend and marketing.

Your January forecast was for 4.2 percent growth in 2008. Are you revising this figure? And if so, what seems to be a realistic figure at this point?

Not yet.

I’m still going to stick to putting out one revision in early June, and that will be after we have all of the first quarter data in to get an indication of how 2008 is shaping up.

I’ve looked at January numbers, and on a like-for-like basis January is up about 1 percent versus a year ago. Which is an improvement. But one month by itself isn’t proof of a change in direction.

How would you describe how 2008 now looks to be shaping up, based on your observation that the malaise of fourth-quarter 2007 has spread into this year?

I think that although marketers are taking a longer-term view, the cutback in ad spending traces back to early 2007, a time when the economic picture was a bit better than it is right now, although there was still concern about the economy slowing down.

All of those things were already in play on a forward-looking basis, and they’re still in play now. It might be a little more grayish now than it was a year ago, but I think we’ve got the same set of factors or forces in play that we did a year ago, and as a result the ad marketplace is still kind of stuck.

It will take, in the near term, some clear indications of what’s going on in the economy to get us off this meandering path.

When you look to the back half of the year, we have Olympics and the elections and everyone might think that’s the salvation. It will boost spending, but the impact is very concentrated, and in some ways you can overestimate the impact of political and Olympics.

It is money in the bank, we do count it, but the day-to-day bread and butter ad market is still struggling.

Long term, the health or the ailing of the ad market is dependant on the core ad market, not the special events. So growth will have to come from the core segments.

When last year did you sense the mood among marketers was growing more cautious over the state of the U.S. economy?

Again, I can’t really think of one “a-ha” kind of moment.

As I said, it’s sort of a gradual unraveling, and the longer it goes on, the more and more embedded it becomes in people’s thinking and acting. And certainly the economic news from the last several months doesn’t really give anybody reason to change their viewpoint of what’s out there on the near horizon.

At best, things are still uncertain.

My opinion on the recession is it sort of misses the point. Whether the economy’s technically expanding or contracting, either way it’s stagnant. Whether it’s a plus sign or a minus sign, that’s symbolic. The bottom line is it’s stagnant.

How much of this pessimism is tied to the ongoing mortgage mess and all of its offshoots and how much speaks to a deeper concern about the underlying health of the U.S. economy? Can you distinguish between these two factors?

I think they are intertwined. Certainly all the turmoil going on in the financial and housing markets adds to the general level of pessimism, without a doubt.

As that level grows, or at least as it remains static, it contributes to that mindset of, "We need to be cautious, we need to be conservative, we need to hold back on sustained ad spend growth."

You can see short-term blips, but statistically it means the same thing: it’s stagnant. What you’re looking for is something sustainable, not something temporary.

Do you have any sense that automotive will pull out of its slump in 2008?

I don’t think so.

I think overall ad spending for automotive will tie back to and be influenced by the level of new vehicle sales. If you sell more cars, you’ve got more money to advertise.

The external forecasts I’m seeing for sales in 2008 are still kind of bleak. They’re around roughly 15 billion vehicles, and it may slip below that, which would be significantly lower than 2007.

By comparison, back in 2004 I think the market topped out at around 17 billion per year. And now we're tracking along at about 15 billion per year. That’s a sharp reduction and it’s not a coincidence that as a result the marketing and ad expenditures have pulled back as well.

What do you see as the strongest ad categories this year?

It’s interesting. Financial services has held up pretty well. That category’s diversified enough with banking, mortgages, etc., that even though the real estate market is in the pits, banks are still advertising at healthy rates and investment brokers have been advertising at healthy rates.

And in some respects, at least in the near term, an uncertain stock market creates an opportunity for some of these investment houses. They can say, “You need a plan, we can help you protect your portfolio.” The timing is such that consumers are receptive to those kinds of messages.

And also packaged goods.

We’ve seen throughout 2007 increased rates of ad spend across a range of packaged goods, in part personal care products and food products. And it’s coming from a diverse group of marketers, it’s not just one company that’s driving this.

We’ve seen increases from Procter & Gamble, Kraft Foods, Unilever. So those advertisers are still very much a force in the marketplace, and they’ve been a pocket of strength.