Best columns: Business
Time to worry about a recession
The Wall Street Journal
“If you drew up a list of preconditions for recession, it would include the following: a labor market at full strength, frothy asset prices, tightening central banks, and a pervasive sense of calm,” said Greg Ip. In other words, a lot like what the economy looks like today. Our 4.3 percent unemployment rate, the lowest in 16 years, “has more room to go up than down.” The economy’s expansion is heading into its ninth year and will be the longest on record in two more. Meanwhile, the Federal Reserve is steadily raising interest rates; a tightening of monetary policy “has preceded every recession.” Ironically, our preternaturally calm market is also a source of concern, suggesting that traders aren’t worried enough about risks. “Implied volatility,” which measures the cost of hedging against market shocks with options, is the lowest it’s been since mid-2007, just before the financial crisis. None of this means a market meltdown is guaranteed, but businesses and investors are acting like steady growth and low interest rates will last forever. “Stocks are trading at a historically high 22 times the past year’s earnings,” with companies borrowing heavily to fund buybacks and dividends. Once prices start to fall, and credit dries up, those companies will feel the squeeze, making any correction much worse. “Those of us who have lived through economic mayhem before feel our muscle memory twitch at times like this.”
What comes after the 30-second ad?
For years, the 30-second television spot has been the bread and butter of the advertising industry, creating hundreds of billions of dollars in value, said John Gapper. “But the traditional ad is in trouble.” The format, created for breaks between shows, hasn’t translated online. Despite initially high hopes that online video would let advertisers target niche audiences, the reality is that “irritated viewers” skip past online ads at the first opportunity. And they are getting more help: By year’s end, Google will stop allowing 30-second ads to run on YouTube unless they can be skipped. Yet advertisers cling to the format because it’s familiar. They also make the mistake of assuming low production values will cut it online; advertisers spent seven times more creating video spots for TV last year than for online, even though digital advertising is now a bigger market. Or they go too far in the opposite direction. At this year’s Cannes Lions, the ad industry’s “annual festival of self-congratulation,” one of the winners was a three-minute-long commercial for a Gillette razor designed for senior caregivers. It was “a delicately filmed and moving narrative,” but who has time to watch three minutes on a razor? The traditional video ad needs a “sturdy successor” for the digital era. It was “a perfect invention for its time; the creatives must create another.” ■