What Does The US Election Mean For The Tech Market? Not Much Either Way

While the last results for US Senate and House of Representative seats are still trickling in, the overall picture is clear — the Republicans have taken control of the House, but the Democrats will retain their majority in the Senate and of course still hold the presidency. In my view, this outcome is a small positive for the tech market, but doesn’t fundamentally change our outlook for around 8% growth in the US IT market and 7% growth in global IT markets in 2010 and 2011.

On the eve of the election, my big concern from an IT market perspective was that the Republicans would take control of both the House and the Senate. That concern was not driven by my political affiliation (which happens to favor the Democrats), but by the potential for a political stalemate between a confrontational Republican Congress (with hard-line conservative Republicans and Tea Party supporters setting a shut-down-the-government tone) and a combative Democratic president. In that political environment, badly needed measures to help stimulate a lagging economy would get stalled, the political battles could shake already weak business and consumer confidence, and the US economy could then slip into a renewed recession. And an economic downturn of course would be bad for the tech sector.

Fortunately, that Washington-in-deadlock scenario now looks unlikely. True, conflict between the parties will continue, and the Republican House will butt heads with the Democratic Senate and President Obama on many issues. But the balance of power after the election actually increases the potential for moderates in both parties to find common ground on job-creating issues like increased tax incentives for business investment and new hiring, extensions of unemployment insurance, a partial or time-limited renewal of the current tax laws set to expire at the end of 2010, and reduced regulations on business (such as eliminating the healthcare reform act’s requirement that businesses have to issue 1099 tax forms to any individual or corporation from which they buy more than $600 in goods or services in a tax year). None of this will be enough to kick the economy into a higher gear — that would require a much bigger economic stimulus program than is politically feasible now. But it will keep the economy on its current path of moderate though subpar growth.

Since that growth path is the economic backdrop to Forrester’s current IT market growth forecast, we don’t see any reason to make major changes to our projections for either 2010 or 2011. While our Q4 2010 US and global IT market report will make some minor adjustments in our 2010 and 2011 forecasts, the numbers will not be much different from our Q3 2010 report. Indeed, the preliminary report on US GDP in Q3 2010 released on October 30, 2010, confirmed our expectations for strong growth in business investment in IT in 2010, with double-digit growth rates in computer equipment categories and high single-digit growth rates in software and communications equipment both for Q3 2010 and for the first three quarters of 2010 (see Figure 1). Government purchases of products will not grow as strongly, with state and local governments especially being weak. And both business and government purchases of IT consulting and systems integration services are not growing as strongly as IT goods purchases. As a result, total US IT purchases by business and government will grow by about 8% in 2010 and 2011 – not as strong as the 11%-plus growth rate for business purchases of hardware and software, but still positive in this economic environment.

Figure 1: US Business Investment In Information Technology, Q3 2010

 

Percentage change from same period in 2009

Q3 2010

First three quarters of 2010

Business investment in information technology

11.7%

11.9%

  Software

9.4%

8.8%

  Communications equipment

7.0%

8.4%

  Computer equipment without capitalized
    systems integration services

21.6%

22.8%

   Servers

18.5%

20.7%

   PCs

19.4%

22.0%

   Storage

19.6%

30.1%

   Peripherals

35.3%

28.9%

Source: “National Income and Product Accounts; Gross Domestic Product, 3rd quarter 2010 (advance estimate),” US Department of Commerce press release, October 29, 2010 (http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm)