10 Reasons Why the Tech Recession Isn't Over Yet

 
 
By Don Reisinger  |  Posted 2010-01-14
 
 
 

10 Reasons Why the Tech Recession Isn't Over Yet


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.

Here's why:

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. 

3. The gaming industry is hurting

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.

The Economy Still Faces Too Much Uncertainty


5. The beginning of the year is tough

I do believe that 2010 will be a better year for the tech sector, but we can't expect it to improve just yet. Historically, the early months of the year, especially January, are tough for tech companies. Consumer and enterprise spending is usually done in December, causing January to lag behind. Expect better results in a month or two.

6. The global recovery is fragile

There is tentative optimism around the world about the next six to 12 months. Some economic indicators suggest that there is a recovery under way, but given the state of financial institutions, a crippled automotive industry and a weakened job market, it is possible that the economy won't recover as quickly or efficiently as some have hoped. This will be true for the tech sector as much as for any other industry.

7. Companies are unsure

Companies of every size are wondering which way to turn in 2010. Many got burned last year, taking big hits to their bottom lines. Although they might be confident that things will get better by the end of 2010, for now, many companies are wondering what the next few months will hold. That will likely mean that they will keep their spending in check for at least another month or two.

8. Where are the jobs?

With a high unemployment rate wreaking havoc on the economy and companies still trying to determine if it's time to start spending again, there are few jobs available. Once again, the government believes that the job market will thaw later in the year. However, until companies start spending, folks get back to work and disposal income increases, we can't expect a major upswing of growth in the tech sector.

9. There's more than spending

Unfortunately, increased spending alone doesn't indicate an economic recovery. While increased spending is an important element in a rebounding economy, there's more to it. In order to overcome a recession, the effects of a resurgence need to be felt by all stakeholders, including consumers, employees and prospective employees. Over the next few months, it's unlikely that all those stakeholders will reap the rewards of Forrester's predictions, should they come true.

10. Worries about a recessionary 'double-dip'

In Forrester's report, it examined the possibility of a "double-dip" recession. According to the research company, there is a 15 percent chance that the economy will grow and then fall back into a new recession. If that happens, Forrester's predictions would (obviously) change for the worst. Granted, the chances of the double-dip recession occurring are slim, but it underscores the state of the tech sector today. Yes, things will likely be better in 2010. Yes, the economy will likely start churning once again. But to say there will be a rapid return to a vibrant economy as we move deeper into 2010 is likely incorrect.

Overcoming a recession takes time. The future looks modestly brighter, but a new resurgence in the tech industry won't come overnight. We can't forget that.

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