North American IT Budgets Stalled By Economic Issues

January 14, 2013 Timothy Prickett Morgan

Like the rest of us, the analysts at Computer Economics want to know what IT shops are planning to do in terms of capital and operational spending this year. And so the company did a survey in the fourth quarter to take the pulse at IT shops around the world, which in North America at least were jittery because of the elections and the looming Fiscal Cliff issues in the United States.

The survey is the basis of the company’s Outlook for IT Spending and Staffing in 2013 report, which was just released. Computer Economics did in-depth surveys of 162 companies located all over the world, with 86 of those IT shops being located in the United States and Canada. Companies were polled not just about their plans to add new hardware or software and work on new projects, but also on what kind of pay raises they expected to give IT employees and whether or not they were planning to add staff.

According to a research note put out by John Longwell, vice president of research at Computer Economics, which has excerpted material from the full report, companies in the Asia/Pacific region are expecting IT spending growth in 2013 that is much higher than in Europe or North America.

“The IT budget outlook in Europe, the Middle East, and Africa (EMEA) looks much like that in North America,” writes Longwell. “While restrained, the forecast seems to call for more of the same rather than a deepening economic crisis. If the U.S. avoids slipping back into recession, IT capital investment and hiring should exceed our forecast, which is based on the budget plans currently being implemented by IT organizations around the globe.”

The good news is that throughout 2012, as the U.S. economy improved, operational IT budgets held up and IT capital spending was a little bit better than CIOs and VPDPs had been telling Computer Economics a year ago. By the third quarter, companies in North America were getting more bullish, and SMBs lead the way, boosting spending on both sides of the IT budget. Here’s where IT shops in North America told Computer Economics where they planned to increase spending as they entered the fourth quarter:

Be careful with that chart. This is not the amount of the spending increases averaged across all of those IT shops polled in North America, but rather the percentage of respondents who said they were increasing spending in these particular areas.

Just because there was optimism heading into the fourth quarter doesn’t mean that it held at all of the IT shops polled during the fourth quarter. IT shops were not just worried about the debt crisis in Europe and the fiscal issues in the United States, but leadership changes and a blip in the economy in China. Basically, there is only one economy at this point, because anything that affects any of these three big markets is going to affect all three of them.

When you average it all out across all IT shops polled in all regions and companies of all sizes, IT operational budgets are projected to grow by about 2.5 percent in 2013, about the same growth in this part of the IT budget last year, with IT capital spending to be held flat (up only three-tenths of a point) and hiring plans put on hold. While some IT shops are planning to do hiring, others are not and some are doing layoffs, so it is a net wash. Expected pay raises across all of the IT shops polled in North America range from 2 percent to 3 percent.

With many companies and government agencies bracing for revenue or budget declines this year, and flat at best, this is not a surprise. Once again, however, SMBs in North America seem to be more optimistic and are projecting a 5 percent boost in capital spending in 2013. Banking, finance, and real estate are industries that are also anticipating increasing their IT budgets; manufacturers, government agencies, educational institutions, and non-profits are less sanguine.

The important thing to remember is that human beings are disproportionately affected by the most recent data they have received. When they were pondering what they might do in 2013 as the fourth quarter had all of this uncertainty, they would no doubt be more cautious, even if historical data over many years and through many contractions and expansions in the economy might have suggested they not be overly pessimistic. The U.S. Congress is working out the budget issues, however messy the process may be and however unhappy it may make all of us in many ways–as I have said before, sometimes the only way to make something fair is to make everyone unhappy. China has $2 trillion in cash and can goose its economy any time it pleases. Parts of Europe are still a mess, but it is no longer a shocker. All I know is that November, December, and January are terrible times to do budgets, but that is when we all have to do them. Things are much more clear by February and March when we shift from guessing about the future to committing to it. Personally, I expect more of the same until the unemployment situation in the United States and Europe improve, and plenty of IT will still get done and tens of millions of people will be employed in the industry. And that ain’t nothing but really something quite dramatic.