The Irish Independent says that while we've all been fretting about debt and prices, we've been getting spectacularly rich - mostly by just sitting around.
The growth in Irish wealth in the last 10 years is truly spectacular. On average, Irish people are six times as wealthy as they were in 1996.
This is wealth, not incomes. Mostly, attention is focused on incomes, and the annual economic output of goods and services which drives those incomes. That has been impressive, too, with national income around three times what it was ten years ago. But wealth - the value of our net assets - has grown even faster.
The main reason is the spectacular rise in the value of property. Over 80pc of Irish households own, or are buying, their homes. They have been sitting and sleeping in a goldmine. Thousands of people with perfectly ordinary jobs, who bought their homes years ago, are now millionaires - sometimes several times over - because of the price of their house.
The value of all the houses in the country is reckoned to be over €500bn. Ten years ago, it was less than €100bn. This has been caused both by real wealth creation, in the form of around half a million new dwellings being built, and wealth appreciation, as the price of houses rose almost threefold.
The mortgage debt being used to buy all the new properties, and fund higher prices on the old ones, has to be subtracted to get actual wealth. Total mortgages for house purchase are now over €100bn, but that still leaves around €400bn in net housing wealth - more than €350,000 per household.
Houses for living in or renting out are the biggest source of wealth for most people. But to it must be added around €60bn in personal deposits, including the famous SSIAs, overseas properties which have a total value of more than €20bn, but are heavily funded by borrowing, €100bn in pension funds, shares and unit funds, plus perhaps €60bn worth of privately-owned businesses. Plus all the stuff we don't know about. Let's call it €700bn all in.
How safe is all this new-found wealth? As the advertisements say, the price of assets can go down as well as up. Property prices do fall, but experience in other countries suggests that most of the price gains made in the last ten years will survive.
One of the worst property booms and busts on record is that of Japan. House prices fell 75pc in real terms from 1990 to 2003. But they had risen 200pc in the previous eight years, so most of the gains remained.
Proportionate losses were even worse in the British bust of 1989. Real prices fell 31pc in the following six years. That wiped out nearly half the 65pc rise during the boom from 1983. That sort of loss seems to be about as bad as it gets, but most home owners still held on to most of their new wealth.
But that is not quite as comforting as it looks at first sight. Those who buy in the three or four years before the price peak can well end up showing a loss, and may even have property worth less than their mortgages. Worse, those who still have large increases in their net wealth after prices turn down tend to react to the drop in their wealth by reducing their personal spending, which slows the economy, which makes things worse for property.
Even in the 'soft landings' experienced by Britain and Australia in the last two years, consumption and economic growth suffered. Irish economists take some comfort from the fact that people here seem not to have used their growing property wealth to fund personal spending, so perhaps will reduce it by less when property prices eventually peak.
Looking further ahead, when the property market has stabilised, it will still leave a remarkable increase in wealth to underpin long-term consumption in the Irish economy. Even now, though, around €3bn a year is being passed on as people die and leave their assets to their families.
One unwelcome dose of uncertainty is our huge overseas investments in property, which seem to be at least €20bn, and increasingly risky. There appears to be no precedent in other countries for anything on this scale and speed, so there are no good guides as to what the implications of such a phenomenon may turn out to be.
The Irish Independent also reports that a tax holiday for US companies' foreign profits led them to divert over $200bn last year - over $30bn of it from Ireland.
The annual report on foreign direct investment flows (FDI) from the Organisation for Economic Co-operation and Development (OECD) shows Ireland in the unprecedented position of having "negative inflows" to the tune of €22bn in 2005.
This was caused by President Bush's one-year tax holiday whereby US companies paid a lower rate of tax on foreign earnings if these were repatriated to the USA. Because repatriated profits did not belong to Irish residents, they count as reverse inflows, rather than outflows.
The successful tax holiday had an even bigger impact on the US statistics. Investment overseas fell from $240bn in 2004 to just $10bn, as US firms invested less of their earnings in foreign subsidiaries.
The tax distortion hides the fact that inflows last year may well have been higher than 2004's $11bn. IDA Ireland described 2005 as a "remarkable year".
The OECD calculates that investments overseas by Irish firms fell to $13bn last year, down from the record $16bn in 2004. The figures include purchases of foreign companies as well as investment in existing subsidiaries.
Total inflows into Ireland between 1996 and 2005 came to $108bn, the report says. This made Ireland the twelfth-biggest recipient of FDI among the 30 members of the OECD. But Ireland was also a significant investor overseas, ranking 15th, with outflows of $66bn.
The tax effect in the USA left France, which often displays hostility to takeover bids from foreigners, as the world's top investor abroad in 2005, with $64bn going mainly in corporate acquisitions.
Investment into France more than doubled to $31bn, but Britain was once again the country that drew in the most foreign direct investment, totalling $164bn.
Among non-OECD members. the report says China "is in a class of its own" with inflows of $72bn. China is also becoming more acquisitive abroad, especially for energy resources in Africa, with outflows of $7bn.
Foreign direct investment into the OECD countries rose 27 percent to $622 bn. "This is the highest level of inflows since the previous investment boom petered out in 2001," the OECD said.
The Irish Times reports that an Aer Lingus deal to win over staff ahead of the airline's flotation in September is still a "work in progress" and the threat of industrial action remains intact unless employee concerns are resolved, union representatives said.
Siptu and Impact, the two main unions at Aer Lingus, were reacting to an offer from the airline that would see staff get a pay rise of 3 per cent, lump sum payments of as much as €4,400, and a scheme giving 7.5 per cent of Aer Lingus's profits to employee shareholders.
Aer Lingus management regards the proposals as a final offer in terms of the financial elements. But unions have taken issue with the description of the package as a final offer.
"What was a proposal is now being described as a done deal and that's not the case," said Michael Halpenny, Siptu's national industrial secretary.
Mr Halpenny wrote to Aer Lingus chief executive Dermot Mannion last week, pointing out three main issues that need to be resolved.
Siptu members voted earlier this year to proceed with industrial action if the Government moved to privatise the airline without addressing certain issues.
Bernard Harbour from Impact said the union would not put the Aer Lingus proposal to its members unless it resolved outstanding issues such as pay, pensions, the profit-sharing scheme, and protection of employment standards.
The 3 per cent pay increase in the offer, which comes on top of the 10 per cent recently agreed as part of the national pay deal, would be partly wiped out if Aer Lingus employees agreed to increase their pension contributions by 2 per cent, Mr Halpenny said. The issue is currently being dealt with by the Labour Court.
Meanwhile, the airline's proposal on pension arrangements has to be examined by pension experts to ensure they are satisfied with the two supplementary funds that would be set up to deal with a looming deficit at a scheme Aer Lingus staff are members of, he said.
Siptu is also concerned how measures to maintain employees' 14.9 per cent stake in the airline would be implemented. Aer Lingus has promised to transfer up to 7.5 per cent of its profits each year to the Employee Share Ownership Trust (Esot) to buy shares to prevent dilution of the staff's stake. "Nothing has been finalised as to how this will be done," Mr Halpenny said.
The airline has agreed that anyone employed before the IPO would not face "less beneficial conditions of service or remuneration" following the listing of Aer Lingus shares. The airline may be worth almost €1.1 billion if its lucrative slots at London Heathrow are included in any valuation, a report from Davy stated earlier this week.
The Irish Times also reports that house prices are rising at almost three times the pace of last year, according to the latest Permanent TSB house price index. In the first five months of 2006, the price of the average residential property rose by 6.7 per cent compared to just 1.8 per cent in the same period last year.
The average price of a home nationally was just shy of €300,000 at €296,361, a rise of €18,500 so far this year.
Over the last 12 months, house prices have jumped by 14.5 per cent, compared to an annual rate of 6.6 per cent at the end of May last year and 13.2 per cent in April.
The May data, compiled in association with the Economic and Social Research Institute (ESRI), continues a sharply rising trend that commenced last October.
"Price growth nationally remained strong in May," said Niall O'Grady, head of marketing at Permanent TSB. "All sectors, particularly commuter counties, have experienced strong rates of growth. However, we expect that the recent ECB rate increase - the third in a series over recent months - will start taking some of the fizz out of the market over the remainder of the year."
The data are only likely to increase concerns among policymakers and economists about a property bubble and the continuing surge in mortgage debt.
A report published last week showed that Irish residential property prices had risen by a cumulative 270 per cent over the decade to the end of 2005 - at a time when inflation rose by just 30 per cent.
Property prices increased by 1.6 per cent last month alone after a 1.4 per cent rise in April and consistent rises of 1.2 per cent per month earlier in the year.
The average Dublin property last month cost €394,795 compared to €256,418 for homes outside the capital. People buying in commuter counties saw prices rising even more sharply - up 2.1 per cent last month and 15.7 per cent year-on-year. Prospective purchasers have seen the cost of homes in this region - Louth, Meath, Kildare and Wicklow - jump €25,000 this year alone to an average of €323,363.
Existing homeowners moving up the housing ladder saw steeper rises than first-time buyers last month, reversing the situation in April. On an annualised basis, however, newcomers to the property market have seen prices increase by 15.8 per cent compared to 14.3 per cent for existing property owners.
The gap between new and existing property continues to narrow with a new home costing an average of €291,380 nationally last month compared to an average second-hand house price of €298,096. New homes are 13.1 per cent more expensive than at the end of May 2005 while existing property has risen in value by 12 per cent.
The Irish Examiner reports that the huge cost of benchmarking was revealed last night as it emerged public service salaries soared by 59% in the past five years and more than 38,000 extra staff swelled the ranks.
The Exchequer’s annual wages and pensions bill increased sharply from €10.2 billion in 2001 to €16.2bn last year — with the benchmarking initiative accounting for up to €1.32bn of that rise.
The figures drew strong criticism from opposition parties, who insisted benchmarking had failed to deliver better frontline services in health, schools and policing.
The number of public servants climbed by 38,760, or 18%, since 2001 to stand at 257,013 last January.
The education sector saw the biggest increase with pay costs to the taxpayer rocketing by 65%. Health sector pay shot up by 63% in the period, civil service salaries rose 48% and in the security sector they rose by 34.8%.
The average weekly earnings for non-health service public sector workers stood at €848 last September, according to the CSO.
This was above the €754 for the banking and insurance sector and €579 for industrial workers.
Fine Gael finance spokesman Richard Bruton insisted taxpayers were not getting value for money.
“Salaries have increased greatly, but there has been no quid pro quo for the taxpayer because ministers did not build the necessary reforms into the benchmarking structure,” he said.
&Labour’s spokeswoman on finance Joan Burton called for benchmarking to be much more transparent.
“I really don’t think we are seeing the money showing up on the frontline of health and education in particular. The bloated bureaucracy is swallowing so much up,” she said.
However, a spokesman for Finance Minister Brian Cowen claimed the opposition were being “very disingenuous”.
“We have seen a significant increase in services in the education and health sectors.”
Public sector pay rose by 8% last year alone and pensions now account for 10% of the total pay bill, up from 8.6% in 2001
The Finance Department’s review of the Sustaining Progress and benchmarking initiatives found they had “contributed to the virtual absence of industrial disputes and disruptions in the public service”.
“It has also been particularly successful in securing commitment to co-operation with flexibility, ongoing change and implementing a modernisation agenda from the groups covered by the parallel benchmarking exercise,” the report stated.
The Financial Times reports that the recent market turmoil has wrong-footed a wide swathe of hedge funds, many of which have seen their gains this year wiped out in the past few weeks, according to figures obtained by the Financial Times.
Nearly every category suffered, but Japan-focused funds have been particularly hard hit due to the fall in the Nikkei.
Seven of the 10 worst affected funds in one big private bank’s roster invested exclusively in that country. Emerging markets, commodities and European funds were also punished.
The fact so many funds were hit in the same way highlights what some see as a worrying trend towards a herd mentality. Jane Buchan, managing director of hedge fund investor Pacific Alternative Asset Management, said: “The phenomenon of serial correlation in hedge funds returns is distressing.”
June marked a second successive month of losses for many funds as managers were overly bullish and took on too much leverage. Based on performance figures obtained from hedge funds and investors, the only category that held up well was last year’s laggard: convertible arbitrage. These funds take bullish positions on a company’s bonds and a bearish position on its stock.
“A lot of managers have gone from being long-short funds [funds that make bullish and bearish bets on stocks] to being long-long funds with leverage, which removes the whole point of hedge funds offering protection in the event of a downturn,” said a partner at a mid-size hedge fund in London.
A sample of returns at big US and UK hedge funds show Paul Tudor Jones’s BVI Global fund down 3.7 per cent through June 21, leaving it up 0.9 per cent for the year. Highbridge saw its event-driven fund shed 4 per cent through June 15, putting it down 2.1 per cent for the year.
Among UK firms, Lansdowne Partners’ Macro fund was down 5.2 per cent for the year through mid-June, but its other funds are up between 2.5 per cent and 6 per cent. Japanese long-short funds Whitney Japan and Odey Japan were off about 4.5 per cent apiece through mid-June, leaving them down 12.3 per cent and 7.7 per cent, respectively.
Big hedge fund investors cautioned against reading too much into a poor month or two, however, noting that performance over a year was more important.
Some participants surveyed blamed the weakness on excessive bullishness and complacency about risks in a volatile period.
US market indices have fallen more than 2 per cent in June, European stocks between 3 per cent and 6 per cent, while Japanese indices are off 7 per cent.
The FT also reports that Dell, the world’s largest PC maker, has reorganised its struggling Americas division in a bid to inject fresh momentum into sales and customer service at its biggest business unit.
Management changes at the division follow several quarters of worse-than-expected results as the company grapples with slower sales growth and the erosion of its cost advantage over competitors such as Hewlett-Packard, Acer and Lenovo.
Kevin Rollins, chief executive, told the Financial Times that the move was designed to allow Dell to be “much more focused on growth and meeting customer needs”, particularly in the US, where the company’s consumer PC business has suffered recently in customer service rankings.
The changes, which were made several weeks ago but not announced publicly by the company, put Dell veteran Ro Parra in charge of the group’s consumer and small business arms.
Joe Marengi, a former Novell executive with nine years at Dell, has assumed control of the company’s US corporate business group. Mr Parra and Mr Marengi were previously the co-heads of Dell’s entire Americas business.
Lawrence Pentland, a third Dell executive, has been put in charge of the operations in Latin America and Canada.
Dell’s Americas business accounted for about 64 per cent of the $56bn the company made in revenues last year.
The reassignments mark the latest round of a shake-up aimed at putting sales growth and customer service back on track.
In March, Dick Hunter, the operations guru who has run Dell’s manufacturing operations for the past five years, moved to customer service and joined the company’s executive committee. Dell has pledged to invest $100m in customer service this year. Mr Hunter has been leading an effort to revamp the company’s call centres.
“We have a very high sense of urgency,” said Mr Rollins. “But that’s a normal Dell trait. When we learn we have a problem, everyone gets on board and gets after it.”
Mr Rollins repeated earlier warnings that margins were likely to suffer as Dell tried to grab market share in an environment of falling prices. However, he said Dell was poised to gather momentum at the expense of less-profitable rivals. “We see the market going into a new consolidation phase. We’re seeing a number of competitors who are on fairly shaky profitability ground flying a bit closer to the ground.”
Dell’s shares have fallen sharply in the past 12 months amid its struggle against an erosion of its traditional strong lead in the PC business following a revival at HP, its chief US rival. Although Dell remains at the top of the worldwide PC market, HP has seen sales and profitability rise significantly in the wake of a $1.9bn restructuring pushed through by Mark Hurd after he assumed the role of chief executive at the world’s second-biggest PC maker last year.
A drop in average selling prices for desktops and laptops coupled with the rise of low-cost competition from Asia, has begun to eat away at Dell’s traditional cost advantage, forcing it to look for new ways to set itself apart from the competition.
The New York Times says that to many car shoppers, $5,000 off might sound like the deal of the year. The truth is, it might not even be the best deal this week.
Tyson Loffredo, a 30-year-old pizzeria owner in a town near Las Vegas with his eye on a new Dodge Durango Limited, hopes to squeeze even more savings from the big sport utility vehicle's $36,000 sticker price before he commits.
"We were getting ready to go out and buy," Mr. Loffredo said, when he heard that Chrysler plans to introduce a new, possibly deeper round of discounts for July. "So we're kind of holding off to see what they're going to do," he said.
American car shoppers have learned that summer is the season of big discounts, and this year is shaping up to be no different, with some discounts amounting to savings of 20 percent or more.
General Motors' newest deal, which starts Thursday, could be worth about $8,400 to someone who buys a Chevrolet Tahoe S.U.V., while Ford's program would save the purchaser of a Five Hundred full-size sedan around $5,300 in interest and gas. In a special promotion lasting only a short while, G.M. offered a $1.99-a-gallon cap for one year on the price of gas in California, Florida and Tennessee.
The pattern was set last summer when General Motors introduced employee-discount pricing for everyone. Ford and Chrysler followed suit, buyers flocked to dealerships and sales soared.
That cleared a lot of inventory off dealer lots. But sales slumped once the deals were gone, taking Detroit's market share to the lowest level in history.
With inventories bulging again and Asian companies making record sales, Detroit automakers are now seeing that they must offer another eye-popping round of promotions to clear out all the cars and trucks that have been sitting too long on dealer lots.
It's a habit the Detroit auto companies, which lost billions of dollars last year in North America, would like desperately to break so they could earn a profit in their primary business.
Despite all of Detroit's claims to have abandoned the fire-sale mentality of the past, the companies' actions suggest otherwise.
"The manufacturers have pretty much trained society that they're going to come out with something in June," said James Lopez, a sales director at Powell Chevrolet in Dallas. Mr. Lopez said he expected to sell almost as many cars from now to next Wednesday, when the deal ends, as he did in the previous four weeks.
The Chrysler Group, a division of DaimlerChrysler, is expected to bring back employee pricing this weekend. Dieter Zetsche, DaimlerChrysler's chief executive, would not disclose the company's plans during a meeting with reporters Wednesday in Detroit. But he acknowledged reintroducing employee discounts is "one of the options."
Several Chrysler dealers said they had been told the company will also give customers no-interest financing, to match similar offers by Ford Motor Company and General Motors, and 30 days to return their cars if they are dissatisfied.
Ford fired the first salvo in this summer's incentive battle in early June with its "Drive On Us" campaign, offering no-interest financing and at least $1,000 worth of free gas to buyers of most 2006 models.
G.M. is beginning a promotion Thursday that will last through the Fourth of July and let buyers of all but its most popular 2006 vehicles take out an interest-free loan of up to six years.
The new discounts are being spurred by rising inventories. Chrysler dealers in May had enough cars to last an average of 77 days, well above the 60 days considered ideal. G.M. reported an 84-day inventory in May.
The backlogs for Honda and Toyota, which have much lower production volumes but higher demand, are less than half that. The danger for Detroit, of course, is that the discounts may lead to a perception that the vehicles it builds are not worth buying unless they are on sale.
"It undermines the integrity of the product because it sends the message that this is not worth what the manufacturer's asking for it," said John Casesa, managing partner of Casesa Strategic Advisers in New York.
"The longer it goes on, the more destructive it is to the brand image and the less likely you'll be able to convince people to pay more for the car at some point," Mr. Casesa continued. "I don't know if some of these brands can be saved because they've been discounted so heavily for so long."
Detroit companies are all pledging to bring out new vehicles that will sell without big rebates and other deals. But in the meantime, they are facing a dismal June sales report that has forced them to once again roll out the incentive ammunition.
The weakness of Ford's sales was cited by Standard & Poor's as one reason it cut Ford's credit rating deeper into junk status Wednesday. It was the third downgrade for Ford in a little over a year.
"The downgrade reflects our view that 2006 will be a more difficult year for Ford than previously anticipated," said Robert Schulz, an S.& P. credit analyst.
Edmunds.com, a Web site that gives consumers advice on buying cars, predicted Wednesday that Chrysler would report a 7 percent decrease in sales for June compared with last year, Ford would post a 4 percent decline and G.M., a 32 percent falloff. (G.M. was the only automaker offering employee pricing last June, so its sales were much higher for that month.) Meanwhile, Toyota and Honda are expected to post increases.
Richard Colliver, an executive vice president at American Honda, said the company's June sales would be up "two or three points" from 2005.
"Sales are coming in pretty strong, so we think we're going to be up," Mr. Colliver said at a news conference for Honda's announcement of a new plant in Indiana.
He did not say whether Honda would match any of the programs that G.M., Ford and Chrysler are offering. "We're still watching the impact of what the domestics are doing," Mr. Colliver said. Jesse Toprak, senior analyst at Edmunds.com, said that this weekend might be the best time this year to buy a car.
Incentives may increase throughout the summer, Mr. Toprak said, but inventories of discounted models will become depleted as dealers prepare for 2007 models to arrive.
"If you're looking for a certain model with particular options," he said, "you might not find it in September."
Some dealers said showroom traffic had dropped off in recent weeks, most likely because consumers sensed new discounts were coming.
"It's been just kind of stagnant when it should be our busy time," said Darren Militscher, general sales manager at Metro Chrysler Jeep in Philadelphia.
Chrysler plans to announce its new discounts Friday morning and put them into effect Saturday. To bolster sales over the long July Fourth weekend, Chrysler is asking dealerships to stay open until midnight.
G.M. hope its brief "72-hour sale" will quickly draw customers into dealerships. But analysts said it might have to continue with some promotion to match its rivals.
G.M. executives insist they have no such plans. The automaker has been trying to shift from heavy discounts to setting sticker prices closer to the amount customers are willing to pay.
Earlier this year, G.M. cut the suggested retail prices on many models by an average of $1,300. That has reduced the amount it spends on incentives but does little to help profit margins.
Mr. Casesa, the analyst, said he expected that incentives would continue to be an Achilles' heel for Detroit car companies for some time. "I expect there will be discounting until these companies are sized and structured appropriately for the market," he said. "And that could take a long time."
The NYT also reports that a leading forecaster of advertising spending has lowered his estimate for growth in the United States in 2006.
The forecaster, Robert J. Coen, attributed the reduction to the continuing weakness in demand for ads in local media, along with soft demand from national advertisers in media like newspapers.
Mr. Coen, senior vice president and forecasting director at Universal McCann in New York, estimated that ad spending this year would increase by 5.6 percent from 2005. His two previous forecasts, made in June and December of last year, called for increases of 5.8 percent.
"Information we see at the local level continues to be pretty dreary," Mr. Coen said during his annual midyear presentation, which took place yesterday in Midtown Manhattan.
One problem Mr. Coen cited, in a report that accompanied his presentation, was the disappearance of local retailers like drugstores and hardware stores as they were absorbed by "huge national entities."
That consolidation results in "a seriously reduced number of local advertiser prospects for many media," Mr. Coen wrote, "with most of the remaining local entrepreneurs surviving" by taking steps like cutting their ad budgets.
Mr. Coen shaved his estimate for ad spending growth in local media to 3.1 percent, from an increase of 4 percent he forecast in December.
•As for the slowdown in demand from national advertisers like automakers for ads in newspapers, Mr. Coen said, "It doesn't look very rosy."
"They're all breaking their back to make money off their online ads," he said of newspapers. "I don't think that's going to solve their problems."
Mr. Coen leavened his more negative prediction for this year with a more upbeat forecast for next year. In his first estimate for 2007, Mr. Coen predicted a gain of 5.8 percent in ad spending, to $303 billion, from the $286.4 billion he is now forecasting for 2006.
Mr. Coen has worked since 1948 for Universal McCann and predecessor agencies, owned by the Interpublic Group of Companies, and is widely considered the dean of ad forecasters. He slyly referred to his status at one point during his presentation when he began a sentence by saying, "I remember, back in 1950," then paused and added, "And nobody can argue with me about that."
Mr. Coen typically offers predictions twice a year, in June and December, adjusting and updating his figures as additional data arrive.
Yesterday, in fact, Mr. Coen significantly revised downward his figure for ad spending growth in 2005 compared with 2004. He reduced the increase to 2.8 percent, from his most recent estimate of 4.6 percent.
Mr. Coen said he made the change because of an unexpected fourth-quarter slowdown in demand among marketers for commercial time and ad space, caused by higher energy costs and the effects of Hurricanes Katrina and Rita.
"It was a pretty poor year," Mr. Coen said, because as 2005 was ending "advertisers seemed to have put a lid on their spending."
By contrast, "some of the uncertainties and supercautiousness" that have recently been hurting growth in ad spending are likely to clear up next year, he added.
Among the industries that Mr. Coen expects to spend heavily on ads in 2006 are those that have "tremendous competition" among companies, he said, like insurance and telecommunications.
Mr. Coen also forecast that spending in traditional media by dot-com companies would increase a strong 25 percent, to $4.6 billion this year, from $3.7 billion last year.
He predicted that spending this year for national advertising on the Internet would also grow by 25 percent from 2005, to $9.7 billion. The figure does not include spending for search advertising, which Mr. Coen does not track.
The reduction that Mr. Coen made in his total for ad spending last year, to $271.1 billion, from $276 billion, also affected his forecast for total spending in 2006 and how much it would increase from 2005.
Mr. Coen's revisions echoed some other recent forecasts that have been trimmed from earlier, more bullish levels.
For example, on June 13, TNS Media Intelligence, a unit of Taylor Nelson Sofres, lowered its estimate for ad spending growth this year to 4.9 percent, from an estimate of 5.4 percent made in January.
Mr. Coen's revised estimate for 2006 put his forecast more in line with those of other analysts. For example, Leland Westerfield, a managing director at BMO Capital Markets in New York, predicts ad spending growth this year of 4.5 percent.
"Local radio and newspapers are the soft points in the advertising market year to date," said Mr. Westerfield, who follows broadcasting and Internet media.
As for Mr. Coen's more optimistic prediction for 2007, Mr. Westerfield said, "it looks very generous." His forecast is for an increase in ad spending next year of less than 4 percent compared with 2006.
Mr. Coen, in his presentation, said he was also surprised by a softness in demand earlier this year for commercial time on national cable television networks. As a result, he cut his estimate for growth in ad spending in cable TV to an increase of 4.5 percent, compared with a previous estimate of a gain of 7 percent.
Mr. Coen's new total for 2005 of $271.1 billion is composed of $172.8 billion in national advertising, up 3.4 percent from 2004, and $98.3 billion in local advertising, up 1.7 percent. His new forecast for 2006 of $286.4 billion is composed of $185.1 billion in national ads, up 7.1 percent, and $101.3 billion in local ads, up 3.1 percent.
For 2005, ad spending represented 2.17 percent of gross domestic product, Mr. Coen said, which he predicted would decline to 2.16 percent in 2006.
If his forecast is accurate, that would be the lowest since the 2.12 percent level reached in both 1992 and 1993. The recent peak was 2.52, during the dot-com boom year of 2000.
•Mr. Coen also offered totals and estimates for ad spending abroad, where growth has been outpacing that of the United States. He predicted particularly robust gains in Brazil, Russia, India and China. Ad spending in 2006 is expected to rise by 23 percent in Brazil, 32 percent in Russia, 13 percent in India and 20 percent in China.
For 2005, ad spending abroad totaled $298 billion, Mr. Coen said, up 6.5 percent from 2004. His new forecast for 2006 is $316 billion, up 6 percent from 2005, and slightly higher than his forecasts last year of $312 billion in December and $313 billion in June.
Mr. Coen's final grand total for worldwide ad spending last year is $569.1 billion, up 4.7 percent from 2004. His new total estimate for 2006 is $602.4 billion, up 5.8 percent from 2005.
If that happens, it would be the first time that worldwide ad spending has crossed the $600 billion mark. It passed the $500 billion level just two years ago, reaching $543.6 million in 2004.
