The Looming Economic Slump

Today’s turbulent economy leads CIOs to ask, Is it gloom and doom for IT?

A look at the last economic downturn a half-dozen years ago may provide answers to what’s in store for IT in the coming year. Eerie similarities exist between the run-up to the last recession and today. Both periods showed strong growth in IT employment and IT spending. Each period had dire precursors, too: then, the dot-com bust, accounting scandals and terrorist attacks; now, near-$100-a-barrel oil, the subprime mortgage mess and the weakened dollar.

The last economic downturn hit hard. From 2000 through 2003, overall global IT spending fell nearly 7.5 percent, according to IDC.

Employment in the IT services sector, which skyrocketed nearly 11 percent in 2000, plummeted even more than that in 2002, as the 2001 recession continued to reverberate, according to government data. And from 2001 to 2004, 160,000 people went MIA from the IT workforce.

Will the repercussions be the same? Likely not.

Initial signs show some weakening within the IT economy, but it generally remains strong. Robert Half Technology sees first-quarter 2008 growth in IT hiring slowing by 4 percentage points from a year earlier, but still predicts a 10-percent net gain. And, though IDC predicts slower growth in IT spending next year, its most ominous prediction is still on the positive side, a 1 percent gain.

CIOs aren’t bullish on the economy, but they aren’t bearish on it, either. Our just-completed Trends and Priorities research shows that about one-third of the nearly 250 surveyed IT executives say their companies will cut IT spending or lay off IT staff if economic growth slows to 2 percent or less or crude oil prices hit $100 a barrel. Still, nearly half see the U.S. economy in 2008 growing either at the same rate or faster than in 2007 and 77 percent see their own company revenues expanding at the same rate or faster in the coming year than in 2007; a mere 5 percent predict they’ll shrink.

Though job cuts would hurt, investing less on wares and services isn’t necessarily catastrophic for IT organizations. The core infrastructure most companies rely on is already installed, and IT pros and businesspeople in general are much smarter today than they were in the past at exploiting technology. Still, innovation and aligning IT and business could be tempered till spending and employment levels regain heft.

The turbulent economy will linger for some time, but unlike the last slowdown, IT should weather this economic storm in better shape.