Advertising boosts US economy

18 October 2010

NEW YORK: Advertising plays a major role in supporting the US economy and employment market, while simultaneously delivering direct benefits for brand owners, a study has found.

Trade body the Advertising Coalition and consultancy IHS Global Insight have released a report assessing the importance of advertising to 52 industries, plus the government.

Overall, it estimated advertising expenditure ultimately accounts for $5.8tr (€4.2tr; £3.6tr) of the US's $29.6tr economic output, and maintains 19.8m of the country's 133.4m workforce.

The $279bn annual investment in ads also generates nearly $20 of economic output for every $1 spent, and dedicating $1m to this area creates 69 jobs.

Elsewhere, the study suggested each dollar of advertising outlay yields an average $8.77 in additional sales, exerting a "multiplier effect" as firms expand their efforts to meet demand.

"The impact of advertising on the nation's economy and employment is enormous," said Jim Davidson, chair of Polsinelli Shughart's public policy group and executive director, The Advertising Coalition.

"The findings also reinforce the policy of 100% tax deductibility for advertising as a business expense."

Among the most obvious results of commercial communications are building brand awareness and helping corporations demonstrate the qualities of their goods and services.

This was argued to "trigger a cascade" of related favourable consequences covering supply chains, consumer spending and the labour market.

Further value is drawn from the cost effectiveness and efficiency of distributing information about prices, technology and design, knowledge hard to acquire via individual research.

Moreover, the process encourages lower and less varied prices through stimulating competition, as well as accelerating the uptake of new innovations.

These advantages initially boost manufacturers and retailers, alongside media owners, ad agencies, production houses and other enterprises concerned with the preparation of marketing materials.

Suppliers are next to gain, while the success of certain sectors can also prompt "inter-industry activity".

For example, automakers serve as a prop for a number of affiliated categories, like insurance providers and petrol stations.

IHS Global Insight stated US adspend levels rose by between 3% and 7% a year from 2002-07, followed by a 1.8% drop in 2008, a 6.6% slide during 2009 and a forecast 1.2% decline in 2010.

Over the 2011-14 period, revenues are expected to post a compound annual growth rate of 2.9%, or improvements in the 3.5%-4.5% range per year.

Data sourced from ANA; additional content by Warc staff