Monday, February 25, 2013

'Sequestration' is the word of the week; a weaken economy could prove disastrous to many publishers

The week is starting with that portion of the news media not still fawning over the Oscars now discussing the possible impact Congressional cuts in spending will have on the nation's economy. The word of the week is 'sequestration': on March 1, spending cuts will most likely take place because the two political parties can not get together to stop them – many in Congress would rather not try.

What will the impact be of these spending cuts? Well, it depends on who you ask. Michael Tanner, a senior fellow at the Cato Institute, a libertarian think tank, and necessarily against government spending in general, writes on the CNN website that the impact would be negligible – no surprise there. The White House, on the other hand, is saying the cuts would devastating, with job losses in the military, cuts to education, and the like – again, no surprise.

Both sides, of course, have a point: while the mandated cuts, $85.4 billion for 2013, may seem large, they still represent a small percentage of the budget. Many believe that the cuts to the defense budget mandated in the Budget Control Act are the only way the Congress could cut the department's funding without facing the wrath of the voters and the lobbyists.

Most likely the spending cuts won't be the end of the world, but any spending cuts by the government would have to be offset by economic activity in the private sector – that continues to be soft. What the sequester cuts end up being is the U.S. version of U.K. austerity – and how is that working for them?

The issue for publishers is both the economy, as a whole, and the strength of the advertising market, in particular. Some consumer publishers have been bragging up their early 2013 ad pages. Hearst, in both the U.S. and U.K., have said their titles have gotten off to a very good start this year. The industry as a whole has been limping along since the financial crisis of 2007-8, and many B2B titles have yet to stem the losses that keep piling up year after year. Although the final numbers for 2013 have not yet been released, the ABM BIN numbers through November show ad pages for 2012 down nearly 9 percent. Anything that might suppress ad budgets in 2013 would be looked at as disastrous. 2013 was supposed to be a turnaround year (then again, so was 2012).

The question to be asked is whether the cuts that would occur due to the failure of both parties to approve an alternative to the Budget Control Act mandated spending cuts would be enough to throw the U.S. back into recession? I don't think anyone really knows - it all depends on the strength of the recovery to date and whether what little improvement we've seen will be enough to prevent the economy going into a tailspin. Also, what will be the impact of cuts in 2013, when many of the cuts are not immediate but spread out over ten years?