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Those urging us not to “talk ourselves into a downturn” are too late. It looks suspiciously like we are there already.

For a while it was possible to claim that problems were largely confined to housing, banking and some bits of the high street. But yesterday brought grim news from a range of other sectors including newspapers, car retailing and even nursing homes, for goodness sake.

The nastiest surprise came from Trinity Mirror, which revealed that advertising fell off a cliff in May and June.

It was not looking great at the start of the year, with classified ads at its regional papers going soft. Housing was predictably weak with cars just as bad. But the decline has accelerated sharply in recent weeks, with display ads turning south and the national titles, including the Daily Mirror, following the regionals down.

In May and June, advertising revenue tumbled by 12.6 per cent. For the national titles it was down 13.5 per cent compared with a 2 per cent decline in the first four months of its financial year.

Given that the company warned that operating profits would be only 10 per cent lower than expected, the 28 per cent fall in the share price might appear excessive. But then it is very hard to find any reasons to be cheerful.

Anecdotal evidence suggests that some of Trinity Mirror's competitors are suffering as badly, with some rival executives talking about the worst advertising market for 20 years. Sly Bailey, chief executive, insisted that if the company was losing market share, it was only marginally. The only other publisher to report figures for the same period has been Gannett, publisher of The Herald in Glasgow and other regional titles, which said that ad revenue was down 14.7 per cent in May.

Meanwhile, circulation continues to shrink, with Trinity Mirror's circulation revenue down 2.4 per cent in May and June. Although online advertising has slowed a bit, it was still up more than 20 per cent in the last two months. But it remains too small to offset the declines in newspaper revenues.

Trinity Mirror's warning dragged down the rest of the sector, with Johnston Press, owner of The Scotsman, falling 9 per cent to 52p, below the 53p level of its recent “deeply discounted” rights issue.

In public, many advertisers are still upbeat. Last week, two of the world's biggest spenders, Unilever and Procter & Gamble, said that they planned to maintain their marketing budgets, though P&G said it would be moving more of its spending to in-store promotion. Unilever said it was shifting some of its budget to cheaper internet advertising, which had the potential for much better returns.

Newspapers should also benefit from what is hotting up into a full-scale price war among the supermarkets.

But many companies, particularly those selling financial services and big-ticket items, are cutting back sharply. And many chief executives in less challenged sectors privately admit that they are scaling back their plans.

The shares of some of the leading newspaper groups have now fallen so far that they look extraordinarily cheap on some measures.

Trinity Mirror shares are trading on about three times forecast earnings for this year. That is worse than the banks, and at least most of the media companies have reasonably solid balance sheets. The optimists say that advertising is highly cyclical and will bounce back in due course. The worry is that some of the advertisers who desert newspapers this time may switch to the internet and never come back.

David Whighton
The Times
1st July