US economic growth confounds holding company excuses

There’s plenty to worry about with Donald Trump in the White House. Foreign affairs aside, we keep hearing that the bosses of the big holding companies are in a state of anguish about the failure of the Trump administration to deliver the US reforms that (they hope) will drive growth and therefore investment in advertising and their other services.

Yet the US economy is doing quite nicely it seems, with three per cent growth in the second quarter driven, according to the FT, by household spending and firmer investment. This is the strongest quarter since the beginning of 2015 (when the holding companies were mostly doing well) according to the US Commerce department. So there’s clearly something of a disconnect.

The eurozone too is, belatedly, returning to some kind of growth – just as the Brits are trying to exit it.

The weakness of the euro and GBP against the dollar is having an effect on business of course but mostly of a beneficial nature for WPP and Publicis as it boosts their revenue. It’s the opposite for Omnicom and IPG. Without the boosted dollar earnings WPP and Publicis might have been posting profit warnings instead of growth warnings.

The root cause of holding company malaise is the reluctance of big clients to spend money with them. These clients, rightly or wrongly, are mostly spending still more money on digital but not with the big media agencies.

There are also big structural changes taking place in advertising and marketing. Unilever, one of the traditional big spenders, has cut back its number of agencies and the fees it pays the remainder. It is also in the process of rolling out up to 30 in-house agencies provided by upstart Oliver Group. Traditionally such agencies (also provided by the likes of WPP’s Hogarth) have been there to provide fast turnaround stuff, not the brand campaigns that conventional agencies depend on. But it’s not much of a leap to see them making inroads into that work too.

Some agencies are fighting back. Johnny Hornby’s The&Partnership (49 per cent owned by WPP) has a big in-house agency called Pulse inside News UK’s Southwark HQ in London and is starting work on new client Toyota Europe with a whole Europe-wide network of them. Omnicom’s DDB has formed partly on-site agency We Are Unlimited in the US to handle McDonald’s, a sign of the influence of former Coca-Cola marketing boss Wendy Clark. In media Omnicom now has Hearts & Science, a new-fangled “data driven” agency that launched with two of the biggest US clients AT&T and Procter & Gamble.

But, outside the US, McDonald’s has chosen to give its FIFA World Cup and McDelivery global work to Publicis-owned Leo Burnett London. P&G also retained Publicis Media to handle its £210m UK media business. So We Are Unlimited and Hearts & Science have, so far, failed to travel.

So there’s still much to be done if the holding companies are to cling on to their dominant position and, more pertinently perhaps, return to growth and defend their margins.

It seems it’s no longer enough to blame “the economy, stupid.”