IT and Consumer Spending Down in 2H2008

IT and Consumer Spending Down in 2H2008

If there was any doubt that the U.S. economy is hurting, taking a gander at today's financial news should sober you up quickly: Lehman Brothers filed for bankruptcy, and Bank of America is bailing out foundering Merrill Lynch. If you are not an investor, you might ask why you should care and what does this have to do with technology. The state of the economy is as much a reflection on actual financial circumstances as it is a perception of today's and tomorrow's financials. This means that what people and companies purchase and who companies hire and who they lay off are all based at least in part on what they think the future holds. We've been hearing for months that companies will be reducing spending and hiring, and cutting back on overhead (i.e., jobs) in the third and fourth quarters this year in anticipation of reduced revenues. Whether it is a self-fulfilling prophecy or not, it is happening...

Investment research company, ChangeWave, recently released the results of a study of 3Q IT spending habits and 4Q IT spending expectations, and in a nutshell, "the results were the worst we've seen in a ChangeWave survey." (The data that ChangeWave published with the survey show numbers only going as far back to September 2004, but ChangeWave has data that goes back father than that.) "You have to go back to the middle of the last recession (August 2001) to find a ChangeWave survey projecting an IT spending downturn this big."



Credit: ChangeWave

3Q IT Spending:
  • 30 percent of respondents spent less than planned
  • 12 percent of respondents spent more than planned

4Q IT Spending Expectations:

  • 29 percent of respondents expect to spend less than planned or will not spend at all
  • 13 percent of respondents expect to spend more than planned
 
Factors Impacting Spending Decisions:
  • 35 percent of respondents blame high-energy costs
  • 25 percent of respondents "said the U.S. presidential election is having an impact"


Credit: ChangeWave

"These grim survey results indicate that the U.S. economic downturn is far from over. In fact, the findings foreshadow even tougher times ahead... When we asked respondents exactly when they thought IT spending would pick up in their company, 39% said not until at least the second quarter of 2009, or later."

Not all the news is bad, however. Research In Motion (RIM) and Apple seem to be doing well on the smartphone front in terms of IT spending. For expected fourth-quarter purchases, 79 percent of companies plan on purchasing RIM Blackberry smartphones. While only 17 percent of companies say they plan on purchasing iPhones, this is a four percent increase since May 2008, and a seven percent jump since a year ago. (On the other hand, Palm is down from 22 percent in February 2007 to six percent now.) ChangeWave further states, "in another positive for Apple, 19% of respondents reported that the release of the iPhone 3G has made their company more likely to purchase Apple products in the future. Only 1% said less likely."



Credit: ChangeWave

Other than RIM and Apple, it looks there will be few winners in IT spending for the rest of this year, and perhaps even into the second quarter of next year. It should be no surprise that consumer spending is also seeing similar declines in actual and planned spending:

4Q Consumer Spending Expectations:
  • 56 percent of say they plan to spend less in Q4 less because of inflation
  • 56 percent of consumers say they plan to spend less in Q4 because of higher energy costs

ChangeWave's survey of consumer-spending habits sees a significant shift in consumers switching from "high-cost items with more reasonably priced ones" (this is what ChangeWave calls the "substitution principle"). ChangeWave reports that retail outlets such as Best Buy, Macy's, and Sears are losing market share, while discount wholesale stores such as Wal-Mart and Costco are seeing a significant uptake in business.



Credit: ChangeWave

The usual fallout from such trends are lay-offs, reduced spending, and companies going out of business. However, a potential upside is a reduction in the cost of non-essential goods. So as long as you have a job, and the places you shop stay in business, you might find more bargains in the coming months, whether you are a consumer or a IT professional.
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