It’s The Economy Stupid

Setting aside some of the financial blow back that has happened due to certain large continuity advertisers not upholding their end of the performance marketing contract, our industry as a whole has held up well in a world that has yet to rebound. As written in another article this week, the troubles our industry faces today has less to do with the broader economy and more to do with specific issues, e.g., trust and differentiation. We assume others are like us in that we have been so focused on our world and the challenges we face – access to traffic among them – that we are guilty of not understanding and perhaps even appreciating the severity or uniqueness of this period in modern history.

Around the election there was no shortage of economic news, and why wouldn’t there have been. By then, the economy was already showing signs of tremendous stress and weakness. As an issue, it’s a double edged sword – a great rallying cry, but now, once in office, you have to do something about it. And, for those who would like ammunition against the current administration, last month’s U.S. Department of Labor’s Bureau of Labor Statistics gave some fuel for the fire. This report came out earlier this month. And, as you can see from the illustration below, the results did not please the market. It showed a large gain in jobs, more than 400,000. Unfortunately, all but 5% of the new hires came from temporary jobs with the Census Bureau. As reported by the Bureau of Statistics, "The number of unemployed persons was 15.0 million in May." And, "In May, the number of long-term unemployed (those jobless for 27 weeks and over) was about unchanged at 6.8 million. These individuals made up 46.0 percent of unemployed persons, about the same as in April." Rather sobering figures, especially looking at persons out of work for six months or longer.

Yesterday, was the end of the second quarter (April – June), and a new report came out. This one was from the payroll company ADP who, by virtue of their ubiquity within larger organizations can provide a more real time look at the job situation. They predict a gain of roughly 13,000 jobs in June, down from their number last month, and significantly lower than the 60,000 estimated jobs added. (The Department of Labor’s numbers for June will come out tomorrow at 8:30am EDT.) ADP’s report was not the only disheartening news that came out on Tuesday of this week. As reported by CNN and elsewhere, the Conference Board, a New York-based research group, said its Consumer Confidence Index dropped to 52.9 in June from 62.7 in May. It was the lowest level since March, when the index stood at 52.3, and it was lower than the predicted 62. Not that we know the difference between 62 and 59.3, but the drop ended a three month gain. The 59.7, while presumably low, sits well above the recession low of 25.3 in February. Not that we needed yet another indicator that, while a recovery is under way, it isn’t under way as fast as initially expected. News that the Commerce Department revised downward its estimate of economic growth for the first three months of 2010, from 3% to 2.7% also came out Tuesday.

Also taking center stage is the financial reform bill. We wrote about it in the context of debt lead generation and that if a certain amendment was to be included, it could spell trouble for that currently thriving vertical. As the NY Times writes, "The House on Wednesday adopted legislation to revamp the nation’s financial regulatory system, in a party-line vote that illustrated how the partisan bitterness in Congress prevented cooperation even on the shared goal of averting future economic crises and government bailouts of big banks." This is, more than the jobs situation seems, if not the scariest, the most disheartening. No less disheartening is the fact that of $787 billion of essentially borrowed money to create the stimulus, the vast majority has been spent. There is talk now about trying to extend portions of it, because many lawmakers and some economists believe that spending now on job related expenses will help prevent another recession.

All we know in our beyond limited understanding of the financial world is that decisions made on knee jerk reactions are rarely the right ones. Said another way, knee jerk reactions almost always require further correction. We give the performance marketing industry a hard time, but had we the right words, we would give our politicians a review multiples more negative. Their incentive model is highly flawed. They want to get re-elected. That’s their incentive, and re-election means actions that make for better sound bites and short term results over longer-term gains. It favors lengthy periods of inaction and deliberation followed by knee jerk policy. It is what it is. Something seems amiss, though, when we have companies sitting on hoards of cash but not hiring. We all have the "universally shared goal of averting future economic crises and government bailouts of big banks." That’s just like saying the performance marketing space has the universally shared goal of eradicating fraud and offering only high quality traffic. I kept thinking we might learn something about our much smaller industry from watching how the bigger versions (the risk taking, short-term acting financial firms) were cleaned up. Right now, all we are learning is what not to do. If only we could sell offers to the government. They like to spend money they don’t have and overpay for it to boot!