Black swans are circling overhead

This has been a tough year for the PR business but there may be even worse times ahead if the "fear index" is to be believed.

I suspect most agency PR pros won’t be sad to see the end of 2017.

As predicted in this year’s PRWeek’s Agency Business Report, the PR results of the major marketing services holding companies have been poor, with even Interpublic Group slowing down after two or three excellent years of high-single-figure growth.

Indeed, IPG’s premier PR firm CEO Andy Polansky, of Weber Shandwick, said in May, "We are cautious about 2017 because whenever there’s uncertainty around the world, it sometimes slows down decision-making," and that forecast has been borne out in reality.

Companies have definitely reduced their investment in marketing and communications over the past 12 months, and there is no sign of that spend creeping back up anytime soon.

Also in May, WPP CEO Martin Sorrell told us: "Businesses have lowered their horizons, and both boards and investors are shy of taking risks. Short-term fixes such as cost-cutting are prioritized over long-term investment, and geopolitical issues only add to that uncertainty."

As I have written here before, the major holding companies are in the middle of an identity crisis brought on by factors including the increasing convergence of marketing disciplines, decreasing confidence in the impact of digital media spend and social platforms’ analytics, and new competition from consultancy firms.

Geopolitical uncertainty has only been exacerbated since the Agency Business Report was published in May. But, despite this, interest rates remain low, the economy continues to grow, and earnings growth is still healthy.

It’s a conundrum: despite it being an uncertain and turbulent time for business, on the surface the economy is still thriving.

This isn’t the first time this paradoxical situation has arisen however.

Noted economist Jeffrey Frankel recently wrote a piece for Project Syndicate in which he noted that the Chicago Board Options Exchange Volatility Index has this year been at its lowest levels for a decade. It recently slipped even lower than March 2007, prior to the subprime mortgage crisis that caused the global financial meltdown.

Frankel notes that when the Volatility Index, known colloquially as the "fear index," is low investors tend to exchange safe options such as U.S. Treasury bills for riskier assets including stocks, corporate bonds, and real estate.

Sorry to be a Jeremiah, but history shows that when the fear index is this low it also usually presages a bust of some sort, brought on by already known gray swan occurrences, or more obscure black swan events that haven’t hit the radar yet, such as the housing market crash in 2006 and 2007.

In times like this, it pays to hunker down, play it safe, and stick to core principles. But remember this shouldn’t necessarily be a kneejerk reaction.

A downturn will focus even more attention on those organizations that can prove the value of what they do and especially their ability to turn PR and marketing dollars into hard revenue.

Perhaps this is why, counterintuitively given modern user habits - especially among young people - TV advertising is experiencing something of a comeback. Brands know it and trust it and they can demonstrate its impact to the C-suite with hard data.

Research shows that companies that maintain or increase their expenditure in a recession generally average higher growth than those that phase out or decrease promotional spend.

If it wasn’t already a top priority, now is the time for PR agencies to demonstrate their value with hard data if they are to navigate through the black swans circling overhead.

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