2008 IT Spending Outlook Modest at Best - Page 2

Nov 13, 2007

Allen Bernard

Outlook for 2008 IT Spending

The ability to fund increases in IT spending levels next year will depend primarily on the overall health of the economy. Therefore, a review of current economic conditions is helpful in understanding the outlook for 2008.

In the third quarter of 2007, U.S. GDP growth increased at a healthy 3.9% clip, according to advance estimates from the U.S. Department of Commerce. This follows an increase of 3.8% in the second quarter. These two quarters demonstrate a rebound from the weak 0.6% growth rate logged in the first quarter. Because of the economic rebound in the second and third quarters, it is not surprising that the vast majority of organizations report actual IT spending this year at or above budgeted levels.

The outlook for IT spending in 2008, however, depends on management expectations for economic growth in the coming year. Here, there are already signs of trouble:

  • The widely reported weaknesses of the housing sector and credit markets are already leading to softness in consumer spending.
  • Risk of inflation and a weak dollar may well prevent the U.S. Federal Reserve from further lowering interest rates, which could hinder economic growth. Although a weak dollar may provide a temporary boost to the U.S. export market, in the long run it makes goods more expensive to U.S. consumers and businesses, leading to higher costs.
  • In October, the U.S. Labor Department reported that temporary jobs were down 70,000 from a year ago. That's the largest decline in five years. Although businesses added 110,000 full-time jobs during the same period, the pullback in temporary positions could be the first sign of a weakening employment picture, as temporary jobs are generally the first to be cut.
  • Although these problems have not yet noticeably affected business investment (of which IT spending is a part), they could be precursors to slowing growth, if not outright recession, in 2008.

    CE’s survey data indicates IT executives have already scaled back their expectations for IT spending increases in 2008. If economic conditions do worsen, CE expects that median IT spending increases in 2008 will be flat compared to 2007. CE does not yet, however, see widespread IT spending cuts in 2008.

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