Will Mad Ave. Start Seeing Heavy Traffic Again?

The major factors behind the dramatic slowdown in advertising outlays that has hit the ad industry and print and broadcast media this year are hardly a mystery (BW-Sept. 23). The culprits include the recession, which has sharply cut spending by debt-burdened consumers and businesses; the public's growing price-consciousness; and a turn toward targeted marketing made possible by computerized market research.

Less noticed but no less significant, however, is a demographic shift that is exacerbating the current advertising slump. In an article in the September issue of American Demographics, economist Martin Fleming of Cahners Publishing Co. notes that growth of the number of households headed by someone aged 35 to 44 is starting to slow appreciably. Such households increased 27% in the 1970s and a startling 47% in the 1980s, as the baby boomers moved past their middle 30s. In the 1990s, by contrast, the number will rise just 15%.

This age group is important, says Fleming, because it includes the biggest spenders in many categories-particularly those connected with maintaining a home and raising a family. In 1988, for example, 21.6% of all households were headed by a 35-to-44-year-old, but they accounted for 26.8% of all consumer spending. The powerful impact of this group on consumer spending (and on related advertising) is underscored by the fact that the total number of households rose just 15% in the 1980s, the smallest increase of any decade in U.S. history.

According to Fleming, changes in the percent of householders in the 35-to-44-year-old age group have a strong impact on shifts in advertising spending as a percent of gross national product. Advertising outlays, he says, grow more slowly than gnp when the percent of householders in the high-spending 35-to-44 age group is declining and faster than gnp when it is rising. Thus, a big reason that such outlays far outpaced gnp in the 1980s, says Fleming, is that more households than ever before were headed by 35-to-44-year-olds (chart).

The bad news is that the slower growth of this group is now reinforcing the inhibiting effect of the recent recession on advertising expenditures. But the good news is that households headed by 35-to-44-year-olds will still continue to grow faster than all households through most of the 1990s, albeit less rapidly than in the past.

So, although Fleming predicts that the economy will expand more slowly in the current decade than in the 1980s, he believes advertising outlays will again outpace gnp once business activity picks up steam. "The advertising boom of the 1980s is over," he says, "but healthy spending growth still lies ahead."

Before it's here, it's on the Bloomberg Terminal.