Consumer Delinquency will Impact Ad-Categories: Branded CPG, Home Decor, Streaming, and Basic Apparel.
S&P Global Ratings expects 2024 U.S. advertising to grow by 7.6% to US $338 billion. However, Naveen Sarma, Managing Director, S&P Global Ratings, tells Portada that there are signs that consumers are starting to feel the squeeze in their debt-servicing capacity. According to the New York Fed and Equifax credit data, there was a significant increase in the percentage of consumer loans that tipped over into serious delinquency (unpaid for 90 days or more) in the third quarter of 2023. Given S&P Global Ratings anticipates interest rates will remain meaningfully elevated in 2024 (relative to the last monetary cycle), Sarma believes there will be a further rise in delinquency rates, especially since student loan repayments have now resumed (starting October); this will likely push up debt servicing costs further and weigh on consumption at the margin. Asked about what high delinquency rates will particularly impact advertising categories, Sarma notes that “broadly, it would be consumer discretionary. Consumers will trade down to cheaper CPG. So,, categories that would be hurt would include branded CPG and home décor. Entertainment — streaming – would be hurt. As would basic apparel.”
” Consumers will trade down to cheaper CPG. So categories that would be hurt include branded CPG, home décor. Entertainment — streaming – would be hurt. As would basic apparel.”
Generative AI Will Have a Positive Impact on Digital Advertising
S&P Global Ratings is uncertain about the near-term impact of ChatGPT on advertising spending over the next few years at both the search engines and advertisers. However, Sarma believes that gen AI could accelerate digital advertising over the long term. “AI should improve the effectiveness of digital advertising campaigns. This will draw more ad dollars to digital platforms and away from legacy media platforms such as TV,” Sarma maintains.
” AI should improve the effectiveness of digital advertising campaigns. This will draw more ad dollars to digital platforms and away from legacy media platforms.”
Advertising Trends: Driven by E-Commerce and Performance Advertising
S&P Global Ratings established a total digital advertising forecast of US $232 billion in 2023, or 68.6% of total advertising (online and off-line). Retail media advertising and e-commerce performance-oriented advertising will be critical growth drivers. According to Sarma, e-commerce-oriented advertising is included in overall digital and divided among search and social (see the table below).
Total U.S. Advertising Investment 2023
| Search | US $130 billion |
| Social | US $72 billion |
| Video | US $20 billion |
| Other | US $10 billion |
| Total: | $232 billion |
Source: S&P Global Ratings
