Measuring the Economic Health of IT, Post Recession

 

Introduction

IT spending in North America is increasing as the economic recovery continues to strengthen. Government incentives have also boosted growth for IT, as demonstrated by IT budget increases in targeted industries such as Healthcare and Infrastructure (Transportation, Utilities, Communications).

Info-Tech expects total IT spending in 2011 by market segment to be:

• Small Enterprises (1-99 employees):                    $458 billion
• Mid-Market Enterprises (100-999 employees):      $335 billion
• Large Enterprises (>1000 employees):                 $324 billion

IT Growth for Mid-Market Enterprises

IT capital budgets lagged behind the GDP in 2010, but are trending upward in 2011 along with operational budgets. Specifically, as illustrated in the chart below:

• Average IT operational budget growth increased from 2.78% in 2009 to 3.69% in 2011 Q1.
• Average IT capital budget growth increased from -1.21% in 2009 to 3.43% in 2011 Q1.
• Average IT staff growth increased from -0.15% in 2009 to a 1.68% increase in 2011 Q1.
• Meanwhile, U.S. GDP was -2.6% in 2009, 2.9% in 2010, and estimated to be 1.5% in 2011 Q1.

Source: Info-Tech Research Group
N = 430

IT Growth in the Overall Market

IT budgets in the overall market (small, mid, and large enterprises) are also trending upward, while staffing levels increased sharply in 2010 before leveling off in early 2011. Specifically:

• Average IT operational budget growth increased from 2.56% in 2009 to 4.27% in 2011 Q1, and has consistently outpaced the GDP.
• Average IT capital budget growth increased from -2.65% in 2009 to 2.26% in 2011 Q1.
• Average IT staff growth increased from 1.58% in 2009 to 7.20% in 2010 before dropping to -0.4% in 2011 Q1.

Source: Info-Tech Research Group
N = 855

TARP & ARRA: Good, Bad, or Ugly for IT?

In January of 2009, the Cato Institute ran a full page ad with the names of approximately 200 economists against the American Recovery and Reinvestment Act (ARRA). Approximately two weeks later, the Center for American Progress wrote a letter to Congress signed by, once again, approximately 200 economists supporting ARRA.

The 2008 Emergency Economic Stabilization Act, and the associated Troubled Asset Relief Program (TARP), as well as Canada’s Economic Action Plan, also received mixed reviews.

The analysis below looks at the impact of these programs specifically on IT departments.

Recap of the U.S. 2008 Emergency Economic Stabilization Act

The Emergency Economic Stabilization Act (enacted in October 2008) injected $700 billion into the economy; the vast majority went to the Financial Services industry, with a notable $25 billion to the Automotive industry.

Recap of the U.S. 2009 American Recovery and Reinvestment Act (ARRA)

ARRA injected another $787 billion into the economy. Key elements included:

• Healthcare: $155.1 billion
• Infrastructure (e.g. Transportation, Utilities/Energy, and Communications): $132.5 billion
• Education: $100 billion
• Tax incentives for individuals: $237 billion
• Tax incentives for companies: $51 billion
• Assistance for unemployed and low income workers, and retirees: $82.2 billion

Recap of Canada’s 2009 Economic Action Plan

The Canadian government’s economic plan included:

• A $40 billion influx, including $12 billion for infrastructure.
• A $200 billion Extraordinary Financing Framework program to help ease the credit crunch and support the financial industry.
• $20 billion in personal income tax cuts.

The Impact on IT

These economic stimulus packages have had a positive impact on IT budgets. Particularly telling are the budget increases for industries targeted by the above funding.

Healthcare, Infrastructure (Transportation, Utilities, Communications), Education, and Financial Services had higher operational budget increases than industries not specifically targeted, with the exception of the Wholesale/Retail industry which benefitted from extensive personal income tax cuts included in the above plans.

Source: Info-Tech Research Group
N = 855

IT capital budget growth (below) stayed in the negative for some industries, although there was improvement relative to 2009. The impact of the government stimulus plans is not as distinct here.

Source: Info-Tech Research Group
N = 855

Key Takeaways

IT budget recovery is gaining traction alongside the economy after many organizations experienced cuts in 2008 and 2009. Specifically:

1. Mid-market IT budgets lagged behind the GDP in 2010, but are trending upward.
2. Overall, IT operational and capital budgets have been steadily increasing since 2009.
3. Government stimulus programs had a positive impact on targeted industries such as Healthcare and Infrastructure, particularly in terms of operational budgets.

Bottom Line

Info-Tech’s analysis of IT budgets across North America reveals a strong upward trend since 2009. Organizations are benefiting from the economic recovery and the effects of government incentive programs such as ARRA.