Overview Of U.S. Economic Outlook

S&P Global economists forecast the U.S. economy will expand by 2.0% in each of the next two years--incorporating the partial implementation of the Trump Administration's proposed economic policies--after rising by 2.7% in 2024. Our assumption of higher tariffs on U.S.-China trade (i.e., the effective U.S. tariff rate on Chinese imports increases to 25%, from about 14%, and China retaliates in kind) doesn't materially affect our forecast for U.S. economic growth. However, inflation will likely inch higher, which could disrupt the Fed's monetary easing path. We expect the federal funds rate will average about 3.9% in 2025 before declining to a neutral rate of about 3.1% in mid-2026.

Our revised forecast

U.S. GDP growth:  Our annual average real GDP growth forecast for 2025 and 2026 is 2.0% each year (up from 1.8% and 1.9%, respectively). These forecasts follow expected 2.7% growth this year. On a year-end basis, we expect U.S. GDP will expand by 2.3% in 2024 and 1.9% in 2025, which is down from 3.2% in the fourth quarter of 2023.

Consumer spending:  Advertising spending is more closely correlated with this metric than GDP. Consumer spending growth remains resilient and will be supported by the recent upward revision to our forecasts for personal income and the savings rate. We project consumer spending will expand by 2.3% in 2025 and 2.0% in 2026, which is modestly ahead of our U.S. GDP forecast.

Unemployment:  The current 4.1% U.S. unemployment rate remains just under the longer-run sustainable estimate. The labor market has cooled off relative to the overheated conditions in 2022 and 2023 and--by many metrics--appears to have returned to pre-pandemic levels. We expect the unemployment rate will remain about 4.2% through 2026.

Inflation:  Inflation will likely remain above the Fed's 2% target for longer than we previously thought.

The Fed:  We now expect the federal funds rate will reach the 3.50%-3.75% range by the end of next year (compared with the 3.00%-3.25% range in our September 2024 outlook). The Fed's reaction has more to do with the ongoing resilience of inflation, as well as its attempts to manage the risks related to uncertain inflation expectations.

Table 1

Total Advertising In The U.S. Continues To Be Robust

We attribute the continued strength in overall advertising to consumers still spending despite perceived fears about the U.S. economy, the emergence of cross-border advertisers (in particular those based in China who have spent lavishly in the U.S. and Europe), and the entrance of new e-commerce advertisers.

We expect overall spending on advertising in the U.S. will expand by 4.5% in 2025, although trends continue to diverge between legacy and digital media platforms.

Advertising on digital platforms, including search, social, retail media (headlined by Amazon), connected TVs, and streaming, will likely increase its share of ad spending as advertisers continue to shift their spending toward digital formats. We forecast digital advertising spending will increase by 9.1% in 2025 after rising by an estimated 13.8% in 2024.

Legacy Advertising Remains Weak

In contrast, advertising spending on legacy media platforms (TV, radio, and print; excluding outdoor) remains weak absent the benefit from political ad spending because audiences are shrinking, leading advertisers to find alternative media to reach consumers. We estimate legacy media advertising will decline by 7.6% in 2025 due to the absence of political ad spending and the Olympics, as well as declining audiences. On a core basis, absent political ad spending and the Olympics, legacy TV advertising will decline by about 4% per year.

Our Expectations

Digital growth will lead to increasing allocation of spending toward performance-based advertising over brand advertising.  Digital advertising offers greater capabilities to target customers and induce behavior. Digital campaigns are more data-driven, which we think indicates they will more likely lead to a customer response. This has supported the outsize growth of performance-based advertising, particularly in social and search. As video consumption shifts toward digital media, we expect performance-based advertising will account for a greater share of advertising dollars. Still, despite this shift, we expect companies will continue to allocate a portion of their advertising budgets toward brand advertising, though we anticipate it will likely increase at a much slower pace than performance-based advertising. In addition, national advertising, which had traditionally been used more for brand building, has been challenged while local advertising outperformed due to its greater focus on direct response marketing.

The secular shift of advertising away from traditional media will continue.  We believe secular pressures, more than cyclical macroeconomic trends, are the main contributor to the continued weak advertising spending on legacy media platforms. Advertisers are shifting their spending toward digital video and away from linear TV. While audiences have been abandoning U.S. linear TV for quite some time, advertisers had been slower to follow suit because the available impressions and unique viewers on all ad-based streaming services remain too small to make buying on streaming platforms efficient.

In addition, ad-based streaming services must still solve several major structural issues, especially a lack of industry standards (audience measurement, buying, etc.) between the streaming services, before advertisers will more fully embrace advertising on streaming. Advertisers used the disruption caused by the 2023 Hollywood strikes to reset their linear TV ad budgets. Still, as new free, ad-supported channels and ad-supported tiers of existing streaming platforms expand and create more ad inventory, they could further dilute the pricing for linear TV advertising and shift ad dollars away from linear TV at an accelerated pace.

Table 2

Digital Advertising: The Growth Engine For The Advertising Ecosystem

We forecast U.S. digital advertising revenue will increase by 9.1% in 2025, modestly slower than our 2024 estimate for a 13.8% expansion, reflecting a return to more-normal rates of growth following an acceleration in 2024. Digital video and retail media networks will be the fastest expanding subsegments because they are both benefitting from the continued shift to online shopping, digital video consumption, and connected TV, as well as the better demographic targeting provided by video on demand viewing. Our 2025 forecasts for search, social, and digital video are 9%, 10%, and 12%, respectively.

Legacy Media Benefitted From Record Political Advertising In 2024 But Will Revert To Secular Declines In 2025

Television advertising

We expect linear TV advertising will remain challenged in 2025 because of the secular shifts discussed above. Not surprisingly, we view national TV advertising as the most exposed to these secular trends, especially on general entertainment and lifestyle networks. We believe local TV advertising is less at risk of losing advertisers to digital platforms than national TV advertising because local advertisers have limited options to reach broad local audiences.

National TV

We forecast national television advertising will decline by 8.9% in 2025 due to secular weakness and the absence of the Olympics. We expect cable network advertising will decline 7.0% and broadcast TV advertising will decline 12.6%. We assume cable's weakness will be due to rapidly declining audience ratings, which puts downward pressure on inventory prices (defined as cost per thousand viewers [CPMs]). The cable networks have limited ability to reverse this trend because, except for sport-focused networks, they lack the sports programming to draw in and retain audiences.

Broadcast TV's decline will be largely due to the absence of the Olympics ($1.9 billion in 2024). Excluding the Olympics, we expect core broadcast TV advertising will be flat in 2025. National TV will increasingly reflect a divergence between the haves (those broadcast and cable networks that have a strong stable of sports, particularly the NFL, and news, especially in a presidential election year) and the have-nots (those without a strong stable of sports and news). The networks with sports programming will not only be able to demand higher CPMs for their sports ad inventory but also sell more non-sports ad inventory because they will bundle their sports and non-sports inventory to advertisers.

General entertainment and lifestyle cable networks are experiencing significant advertising declines with both weak demand and lower ad inventory prices. These networks have suffered the biggest audience declines because media companies have prioritized putting new original content on their streaming services instead of their linear TV networks.

Live sports programming, either on sports networks like ESPN or broadcast networks carrying the NFL and college football, will continue to see strong demand from advertisers. This is not surprising because the audience ratings for the NFL have been roughly stable while the audience ratings for general entertainment continue to slide by over 20% year over year. Total audience ratings for the NFL are down 2% for the 2024 season after rising 7% in 2023. We believe the linear TV networks have limited advertising inventory for sports programming and thus are able to charge higher prices. Due to these higher prices, TV advertising budgets have been drained, leaving advertisers with less money to spend for advertising on general entertainment networks.

Local TV

We expect core advertising will increase 1.5% in 2025, primarily because it won't be crowded out by political advertising, which was a significant headwind in the third and fourth quarters of 2024. Local TV is not immune to the declines in TV audiences (given cord cutting and declining viewership), although we believe local TV advertising faces less risk of losing advertisers to digital platforms than national advertising because local advertisers have limited options to reach broad local audiences. The automotive category remains an important category for local TV, although the recovery in automotive advertising stalled in the middle of 2024. Spending on automotive advertising could be further hindered if the Fed delays its interest rate cuts or the Trump Administration introduces new tariffs in 2025.

We believe local TV, in aggregate, saw record political advertising revenue in 2024 and maintained the lion's share of political advertising dollars. We continue to believe TV is more attractive than other forms of media for political advertisers, given its significant reach and ability to target voters in select districts. However, performances will vary between companies depending on their geographic footprint and the number of competitive races in their footprint. Furthermore, we believe it will be increasingly difficult to forecast political advertising revenue for individual companies because of the potential that political advertisers will shift their dollars outside of a given company's station portfolio at the eleventh hour, which occurred in both the 2022 and 2024 elections.

Radio advertising

We forecast broadcast radio advertising stood at about 75% of pre-pandemic levels in 2024. We believe the prolonged period of elevated inflation and interest rates has accelerated the secular decline in broadcast radio advertising and now expect broadcast radio advertising will decline 4%-5% annually. That said, radio advertising has some of the shortest lead times in media, which gives us little visibility into its future performance. We believe radio companies only have a few weeks to a month of visibility into their forward ad trends.

Outdoor advertising

We have revised our 2025 outdoor advertising forecast upwards to 4.5% from 2.8%. Local advertising materially outperformed national advertising in 2024, though national advertising began to improve in the second half of the year. We expect continued momentum in national advertising will fuel a step-up in the pace of the industry's expansion in 2025.

The industry's conversion to digital billboards from static reduces the time needed to place an ad, allowing companies to quickly book business as economic conditions improve. At the same time, we continue to believe outdoor advertising remains an attractive way to reach consumers, given its captive audience of drivers, commuters, and pedestrians.

Risks To Our Advertising Forecast

We believe there is greater downside risk to our 2025 advertising forecast than upside potential. We believe the risks to our forecast will generally come from macroeconomic issues and geopolitical conflict related to a trade war between the U.S. and China, including high tariffs, that could adversely affect China-based advertisers. In addition, the incoming Trump Administration may seek to ban or limit pharmaceutical advertising on TV. Pharmaceutical advertising skews toward national television and the loss of this key vertical could hurt television, though we expect the overall effect will be neutral because pharmaceutical companies will likely shift those ad dollars to other media.

Ratings Implications

We expect our ratings on most advertising-dependent companies will remain stable in 2025. The is due, in part, to the many rating actions we undertook on legacy media companies over the last two years to reflect their weakening advertising revenue and credit metrics.

Related Research

• Industry Credit Outlook 2025: Media and Entertainment, Jan. 13, 2025
• U.S. Media And Entertainment: Looking For The Winds Of Change In 2025, Dec. 12, 2024
• Credit Conditions North America Q1 2025: Policy Shifts, Rising Tensions, Dec. 3, 2024
• Economic Outlook U.S. Q1 2025: Steady Growth, Significant Policy Uncertainty, Nov. 26, 2024