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Economic Pulse: BIA’s Monthly Quick Take for May 2023

by | May 30, 2023 | BIA, Blog, Economic Pulse

Earlier this year, in this very blog, I posed one question everyone has been asking and another that had been bugging me – First, ‘Are we in a recession?’ and second, ‘Does it even matter?’

Now, with nearly half the year behind us (!!), it makes sense to look back and try to answer those questions. We should start first with, “what is a recession?” The National Bureau of Economic Research (NBER) is the typical scorekeeper, and their definition is, “that it is a significant decline in economic activity that is spread across the economy and lasts more than a few months.”

Economists look at different indicators, and some of the data used to make the call is not even available until after what ended up being a recession is over. Turns out we still *technically* don’t know if we are in a recession or not (though it’s very likely that we are) but one thing I can be sure of is that it doesn’t matter one way or another because perception is more important than reality and that’s what’s impacting Local Advertising spending right now. 

Americans view inflation as the top problem facing the country today, with 70 percent saying it’s a “very big problem.”  It’s not affordability of healthcare (55 percent), violent crime (54 percent), or gun violence (51 percent) rating as the number one “very big problem”, even though these each are hot topics in and of themselves these days. 

Inflation is, by far, THE thing on everyone’s minds.  It follows that local business owners and Advertisers are people, too, and they are also worried about the near-term future of the economy and, most especially, the health of their business. 

What makes all this very interesting is that we have seen some recent optimism with Small Business confidence rising.  Forty percent of Small Business owners describe their current business conditions as good while only 21% say they’d describe the economy as good or excellent. That gap provides an advertising opportunity

Historically, advertising spending goes down during recessions.  And even though plenty has been written about why it’s not a good idea to cut advertising spending during a recession, Advertisers and Business Owners are human and they don’t always do what studies tell them they should be doing. During most previous recessions, these Business Owners were feeling the same pain as the economy around them, leading them to cut Advertising budgets along with other expenses to help them through the difficult times.

But this time it’s different. Remember 40% of Small Business owners describe their business conditions as good. And 76% of business owners expect their business to survive today’s economy.

Source: Guidant Financial 

According to data from the Bureau of Labor Statistics, approximately 20% of small businesses fail within the first year. By the end of the second year, 30% of businesses will have failed. This time around, rising inflation largely means these owners are able to charge more for their products and services – even more than the rise in the costs associated with producing the products they are selling. Despite macro-economic concerns, 66% of Small Business owners reported profitability in 2022.

At the same time, we are seeing TV and radio National and Network ad rates falling. Thus far, Local Advertising has remained relatively robust. Furthermore, the shifting of dollars away from Network and National makes this entire landscape less noisy with some stations even choosing to run lighter spot loads, allowing Local Advertising messaging to break through. Now is the time for Local Advertisers to take advantage of this and get even more bang for their Advertising buck. 

Looking ahead, I feel good about Local Advertising over the next six months. I believe the savvy Small Business owners will increase their ad budgets and use the rest of the year to test out new media channels and ways to get their messaging in front of their target audience. 2024 will be very busy and noisy with Political advertising. 

We are in a short window of opportunity before consumers start getting bombarded by political ads and Advertisers experience “political crowd-out”. Advertisers would do well to use this time to attract new customers by addressing inflation concerns directly in their advertising messaging.  

Now is the time for more messaging and, recession or not, now happens to also be the time these businesses are able to make these investments for the future health and growth of their business.