10 Reasons Why the Tech Recession Isn't Over Yet
News Analysis: Speculation abounds over when the tech recession will finally come to an end. A Forrester report claims the worst is over. But we think things aren't quite rosy as Forrester predicts just yet. There is still a lot of uncertainty in the overall economy that could stall IT investment in 2010. Here is why we are taking a more bearish view of the IT economy.A recent report from market research company Forrester contends that the global tech recession that has cost jobs, profits and confidence in the global marketplace is "unofficially over." Forrester said it expects IT spending to rise a considerable amount. In fact, Forrester said tech spending will grow at "twice the rate of gross domestic product this year." Much of the increase in spending will be allocated to smart computing, which integrates more aware technology with advanced analytics in several spaces, including virtualization and cloud computing. Things will be so good in 2010, Forrester contended, that software purchases will jump nearly 10 percent, while equipment sales will increase 8.2 percent during the year.
Hopefully Forrester's predictions will come true. And based on the state of the tech industry from a historical perspective, it's certainly likely that by the end of 2010 the outlook for the future of the IT industry will be much better than it is today. But I'm not so quick to believe that the tech recession, with the turn of the New Year, is suddenly over.
Unfortunately, 2009 was a bad year for the industry. Companies of all sizes put the brakes on capital spending for IT, enterprises cut back on IT hiring, IT companies suffered through lower sales and profits, and IT industry employees lost their jobs. Although I fully believe that the industry will start a comeback in 2010, I'm not so quick to believe that good times will soon return now that we've entered a new decade.
1. Unemployment is high
Although Forrester has a rosy outlook for the next year, unemployment is still high. According to the Bureau of Labor Statistics, the unemployment rate in December 2009 was 10.0 percent. All told, 15.3 million Americans were out of work. It's probably safe to say that figure will drop over the course of 2010, but a tech recession can't be over until more people go back to work. Recovery from a severe recession is usually a gradual process. It often happens in fits and starts. Things might be going well for some companies right now, but what about the work force as a whole?
2. The IT industry relies on an overall healthy economy
The tech sector might do better than many others this year, but it's important to remember that it relies upon the success of other sectors in the economy to truly perform well. After all, if the automotive industry is suffering, it won't invest in technology nearly as readily as it would when things are going well. For now, a wide range of industries aren't doing too well, which means the tech sector will take some time to get going.
For a while, the gaming industry helped buoy the tech sector. But in recent months, sales are down, causing some to wonder if and when the games business will rebound. In the United Kingdom alone, video game spending was down 18 percent in 2009. As of this writing, NPD hasn't released its final 2009 figures, but unless the industry had a huge month of December, sales will be down across the board. That's not good for the overall tech sector.
4. It's a global struggle now
Forrester's research found that Western countries, like the United States, Canada and the United Kingdom, will likely lead the tech-spending charge in 2010. Unfortunately, spending won't be so high in other areas around the world. That's especially important to consider. The world is flat and companies are now doing business with others around the world. If tech spending is lower in Asia than in other markets, it will have an effect on the rest of the world.