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GM (GM) cut advertising 28% in the first half of the year. The FT writes that Nielsen Monitor reports "overall spending in the first half of the year fell by 0.5 per cent with the biggest declines in network radio, down 8.5 per cent, and national and local newspapers, down 5.9 and 8.0 per cent, respectively."

Among the 10 biggest advertising spenders in the US, seven cut their budgets in the first half of 2007.

Internet advertising was the only category with strong first half growth over last year, up 23%. But, this is below recent growth rates and will probably continue to slow as the total base of online dollars gets bigger.

All of this relatively bad news for the advertising industry happened in the first half of the year, when overall GDP improvement was relatively strong.

What happens in the second half of the year, if the economy hits a recession.

First, newspaper advertising which is running down 5% to 10% most months at large companies like The New York Times (NYT) and McClatchy (MNI) may start to fall in the low double digits. Classified revenue is already off nearly 20% at some of the chains. A faster decline in newspaper numbers should put pressure on stocks in the sector, and could lead to a default at an over-leveraged firm like Journal Register (JRC).

On the internet, large portals, especially Yahoo! (YHOO) have seen declining growth rates for display ads. At the big online company, revenue growth is already in the 10% range. A severe ad recession could push Yahoo! topline growth to close to zero. That would almost certainly take its shares below $20.

For the ad markets, it was tougher in the first half than most on Wall St. believed. The next act could be bloody.

Douglas A. McIntyre