When I do my US tech market sizing and forecasting, I start with the data on business investment in computer equipment, communications equipment, and software in the quarterly National Accounts of the US Bureau of Economic Analysis (BEA). As Forrester’s recently published report on the US tech market noted (see September 28, 2012, "US Tech Market Outlook Dims For 2012 To 2013 -- US Tech Market Spending Will Maintain A Mediocre 4% to 5% Pace"), the BEA in July revised the historic data on these categories of business investment going back to 2009, significantly reducing the size of tech investment in this period and lowering the growth rate of business tech investment to a pace not appreciably faster than the growth rate in the US economy.
While I adjusted my tech market sizings and forecasts to these lower numbers from the BEA, I have been wondering whether the BEA in their data collection is missing key segments of new technology, and thus understating the level of tech buying that is actually going on. We have no good way of answering this question since the BEA has not publicly indicated that there have been any changes in data sources and aggregation methods that would signs of undermeasurement. Still, here are the questions I would ask BEA if I had the chance.
Earlier in 2012, I was fairly bullish about the US tech market, expecting growth of 7% to 7.5% for the near depending on whether or not telecommunications services was included (see April 24, 2012, "US Tech Market Outlook For 2012 And 2013 -- Improving Economic Prospects Create Upside Potential") . But economic growth has been weaker than I assumed, coming in at 1.3% in Q2 2012 compared to my expectation that real GDP would grow by around 2-1/2%. In addition, the US Bureau of Economic Analysis revised downward its estimates for growth in business investment in computer equipment, communications equipment, and software. These revisions eliminated the evidence for my thesis that the US was in a new cycle of tech innovation and investment that was causing tech investment to grow twice as fast as the economy. Instead, the revised data showed that tech investment was growing at about the same rate as the US economy in 2010 and 2011, not faster as earlier data had shown. Tech innovation is clearly going on, but at least in the official data tech investment has not responded in kind. So, with nominal GDP growth for 2012 shaping up to be about 4%, our tech market growth outlook for 2012 in our latest US tech market forecast report (see September 28, 2012, "US Tech Market Outlook Dims For 2012 And 2013") is about the same, that is to say, in the 4.5% to 5% range.
In a separate blog post ("What A Romney Presidency Would Mean For the US Tech Market Outlook"), I analyze what I think would be the likely impact on the US tech market if Mitt Romney is elected President in November. In this post, I provide a similar analysis of the US tech market should Barack Obama be re-elected. As with my analysis of a Romney election, I start with the premise that elections only slightly move the needle on the general course and direction of tech market growth, at most shifting growth rates up or down one- to two-percentage points.
In that blog post, I pointed out that there are only minor differences between the Republican and Democratic platforms in terms of policies directly impacting the tech industry, and almost no differences in policy areas not addressed in the platforms, such as tech investment tax incentives. That means that the biggest impact of an Obama election on the tech sector will come from what that would mean in terms of tech demand – that is, how the economy would grow under an Obama Administration, and how government spending on tech might change.
Like the Republican platform, the Democratic platform is vague or ambiguous on many critical details of economic policy, especially in explaining how it would address federal budget deficits and entitlements spending. As the incumbent, Obama does have a track record, which we can use to make some predictions about his administration’s likely policies if he is re-elected. Here are the key tenets:
· Support for additional fiscal and monetary stimulus to boost economic growth.
With the US presidential election race entering the two-month sprint to election day, I think it is useful to speculate on what a Romney administration would mean for the US tech market (in another blog post, I analyze how a second Obama Administration would affect the tech market -- see "What An Obama Reelection Would Mean For the US Tech Market Outlook.")
To start, we should remember that US elections don’t have much of an effect on tech spending and purchases. Businesses and governments make tech buying decisions based on their own needs and funding resources, which elections affect only around the margins. I don’t expect this election to diverge from this historic pattern. Still, marginal tech decisions can mean the difference between a tech market that grows by 3% to 4% or one that grows at rates of 5% to 6%.
With two thirds of 2012 completed, it has become clear that the global tech market is not going to grow as fast this year as we had expected in January. Back then, we predicted that business and government purchases of information technology would grow by 5.4% in 2012 when measured in US dollars. In our latest forecast (see September 10, 2012, Global Tech Market Outlook 2012 To 2013: Economic Weakness Will Slow, But Not, Stop Growth), we now expect growth of 1.3%. Much of this slowdown is due to greater-than-expected strength in the US dollar against other major currencies. Measured in local currencies to eliminate currency fluctuations, we project 2012 growth will be better at 3.6%. Still, this too is lower than our January prediction of 5.3%, which is the result of slower economic growth in the US, Europe, China, and India.
I want to point out that, apart from the currency effects, the slowdown is concentrated in one geography – Europe – and one tech product category – communications equipment. In local currency terms, the tech markets of the US and Asia Pacific will grow by 4% to 5%, while emerging markets in Latin America and Eastern Europe, Middle East, and Africa will expand by over 8%. The weak spot will be Western and Central Europe, where the tech market will shrink by 2.5%. On a similar basis, software, IT consulting and systems integration services, and IT outsourcing will grow by 4% to5% or more, and computer equipment by almost 3%. But communications equipment purchases will decline by almost 1%.