ALEX BRUMMER: Adverts send amber signal

The performance of companies as diverse as Apple, Britain’s world-leading advertising group WPP and broadcaster ITV might not appear to have anything in common.

Nevertheless, disappointing financial results from all of these businesses have a common cause.

Economists monitor all kinds of data in seeking to project where national and global output is going.

Freight rates, credit and debit card activity, and cranes across urban landscapes (a favourite of the late chancellor Nigel Lawson) are all followed by analysts as a means of getting a jump on the competition. These are especially powerful tools for investment banks, hedge funds and other traders.

Among the unsung indicators are the promotional budgets of the corporate world.

Bad omen: When there are worries in the executive suite about the future, promotional and advertising budgets are the first to be cut

So far, in spite of the Bank of England’s gloomy forecasts, knocking consumption and business investment on the head has proved harder than the interest rate-setting Monetary Policy Committee might care to admit.

Latest data shows booming car registrations with a 25 per cent uplift in July 2023 from a year ago and the 12th consecutive rise. That almost parallels the Bank of England’s 14-month tightening cycle. Admittedly, there may be special factors such as the 2030 target for going electric. Nevertheless, the data is far from meaningless.

The headlines tell us that higher interest rates are causing pain and will monster housing and construction.

Yet the Bank’s own mortgage approval data and home loans figures ticked up in June. The construction Purchasing Managers’ Index also jumped in the same month and is now out of recession territory.

An underrated indicator is advertising. As someone who started his career at J Walter Thompson, now embedded in WPP, and has gone on to spend several decades on national newspapers, I could not but be aware of how advertising provides clues to corporate jitters. Most marketing directors would testify that when there are worries in the executive suite about the future, promotional and advertising budgets are the first to be cut. Technology has made that crude assessment more complicated now that media buying is likely to be handled by an algorithm and made ever more volatile by AI.

Yet the stories from WPP, Martin Sorrell’s S4 Capital and ITV are more or less the same. In July, S4 Capital, which does digital advertising, warned that second-quarter income was hammering the commercial spend of clients such as Facebook and Google and, one dare say, Apple.

WPP tells the same story. Shares plummeted 3.5 per cent in trading yesterday as the company downgraded its prospects because of lower spending by tech customers. Clients are much more cautious about promotional spend.

Fearful of declines in traditional (now called linear) advertising, ITV, which in the UK still has the luxury of being able to reach mass audiences, also recently reported disappointing commercial data.

In the light of what may prove to be a secular decline, it has been active in seeking new sources of income, from streaming subscriptions to studio production. So what should we make of all of this? It is not entirely encouraging, in spite of recent bumper results from a range of FTSE 100 companies, which have used the post-Covid era to widen profit margins. It would suggest that the very biggest global companies have been dealt a psychological, if not much of a financial, blow from the aggressive round of interest rate increases on both sides of the Atlantic and further afield.

There is a real possibility than advertisers have pushed the pause button too soon and a global recession is averted.

In the US, there is much talk of a ‘soft landing’ – a slowdown which does not cause recession. Given the amount of fiscal stimulus undertaken by the Biden Administration, that would not be that surprising.

After the Bank of England’s fire and brimstone talk about wage pressure and the need to come down hard on inflation at Thursday’s interest rate meeting, there are first hints that it may soon be possible to ease off the brakes in the UK.

Chief economist Huw Pill said policy actions so far ‘are working in pursuit of target’. Advertisers may have cut and run too soon. If the US, Britain and others can get through this year without a recession, the marketing departments might be allowed to turn the spending taps back on and secure new sales.