A recession is now looking probable rather than possible in 2008 and would cause an extra 5% advertising revenue decline for newspapers, already braced for a bad year.
That's the conclusion of Goldman Sachs analyst Peter Appert in a report, "Reducing Estimates (again)," published this morning. With the firm's economists now estimating a recession later in 2008 and economic growth for the year of just 0.8%, Appert changed his 2008 forecast from a 2.6% decline in ad revenue to a dip of 7.9%. By contrast, the optimistic Newspaper Association of America predicted in December a modest 0.5% decline for the year. Totals for 2007 are still being added up but should finish -5% to - 7%.
Just because Goldman thinks recession is in the air doesn't make it so -- but keep in mind these guys were smart enough to avoid the sub-prime debacle that crippled other big Wall Street firms.
To me, it's a reminder that the industry's recent hard times have come as the overall economy has been doing relatively well. Advertising is cyclical, often a leading-edge and deep accompaniment to a downturn, as in 2001-2002.
Cutbacks planned last fall have been announced in a steady trickle as the New Year begins. A downturn would obviously bring on more rounds of economizing later in the year.
Appert describes himself as "below consensus," (and the Biz Blog will not make a habit of two items in one week on his views). He now has no buy recommendations on newspapers and suggests clients sell New York Times and McClatchy stock.
In a similarly pessimistic vein, however, Bank of America analyst Joe Arns
predicted in a report that New York Times stands to take the worst of it if a downturn builds. Entertainment and luxury goods, which were strong categories in mid-2007 and important to the Times advertising base, would particularly suffer in a soft economy, he said.
