Aggregate Advertising Expenditure in the U.S. Economy provides
evidence that over the period 2000 through 2018 nominal aggregate
advertising spending in the U.S. as a share of nominal GDP has been
falling. The elasticity of advertising with respect to nominal GDP
appears to have increased substantially since the late 1990s. The
authors further show that nominal aggregate advertising spending
has become more responsive to changes in real GDP and GDP price
inflation. Finally, the monograph considers the implications of
ongoing developments in the management of advertising campaigns and
pending public policy issues surrounding controversial digital
advertising practices for how advertising's macroeconomic role may
evolve in the future. The authors stress the development of
media-specific and aggregate media mix prices indices as being the
critical next step in advancing understanding of the sensitivity of
aggregate spending on advertising to cyclical and secular shifts in
total economic activity and the components thereof. Following a
short introduction, section II provides some historical background
on the twin problems of defining advertising in the face of its
ever-changing boundaries and measuring its output as a service
industry. Section III sketches the vertical structure of the U.S.
advertising industry and describes the set of four time series
assembled that measure nominal aggregate advertising spending by
advertisers and the related revenues of two sectors who function as
service providers to advertisers -- advertising agencies and media
firms. Section IV reviews the media price indices available from
private sector sources and the BLS. Section V presents the double
log constant elasticity model that serves as the conceptual
framework underlying the analysis of the relationship of nominal
aggregate adverting spending to GDP. Section VI reports extensive
analyses of autocorrelation and partial autocorrelation
coefficients calculated in order to assess whether the measures of
nominal advertising spending exhibit stationarity and guide our
choice of the order of moving average autoregressive function
specifications. Section VII presents the results indicating that a
structural shift in the sensitivity of nominal aggregate
advertising to GDP occurred around the turn of the century when, in
nominal terms, aggregate ad spending became more responsive to not
only changes in nominal GDP but also to changes in real GDP and to
changes in GDP inflation. Section VIII discusses implications of
changes in the management of advertising campaigns accompanying the
ascendancy of digital media and the resolution of public policy
issues surrounding digital advertising practices. Section IX
summarizes the main conclusions.
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