Investors looking to advertising groups for early hints of an economic recovery have received mixed signals this week. Downbeat results on Tuesday from WPP, the world’s biggest advertising group, should take some of the gloss off better-than-expected results from rivals Omnicom and Interpublic.

Fresh off a first quarter in which underlying sales dropped 5.8 per cent, Sir Martin Sorrell, WPP’s chief executive, warned that the second quarter would show little improvement and that a recovery was unlikely until 2010. Contrary to WPP’s earlier estimate of a 2 per cent drop in like-for-like sales this year, it now expects like-for-like revenues to fall by the mid-single digits, excluding acquisitions and currency movements, as ad budgets continue to suffer in the recession.

Many forecasters had already pegged WPP’s earlier estimate as overly optimistic. While first-quarter sales came in below WPP’s own estimates, they were in line with most analysts’ own forecasts for the group. News that WPP was unlikely to maintain its operating margin at 2008 levels was somewhat more disappointing, but again not unexpected. In that context, the drop in WPP’s share price looks overdone.

But investors keen to pounce on hints that the worst of the downturn may be over should also think twice. Omnicom’s optimism on Monday was based largely on the idea that stimulus spending will lead to an improvement in ad budgets by the end of this year. But stimulus-driven demand is one thing. A sustainable recovery is quite another. Advertising has typically been viewed as a leading indicator – some investors expect ad agency revenues to begin to improve several months before any turnround in the broader economy.

Publicis, the world’s fourth-biggest ad group, will round out the industry picture when it reports results on Wednesday. In the meantime, Sir Martin’s prediction of continued pain for advertisers until next year will serve as cold water in the face of the green shoots brigade.

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