Economists, IT Analysts See Signs of Economic Recovery

Computerworld — The federal government Wednesday reported a 6.1 percent contraction in the U.S. economy during this year's first quarter—a grim headline in the making. But economists and IT industry analysts saw some hopeful signs in the latest numbers, as did Wall Street, where stock prices staged a midday rally [on Wednesday].

The U.S. Department of Commerce, in its quarterly report on gross domestic product (GDP), said that consumer spending increased by 2.2 percent in Q1 on a sequential basis, after falling 4.3 percent in last year's fourth quarter. Consumers account for about two-thirds of overall spending in the U.S., so the first-quarter jump was seen as a good omen for the economy as a whole.

"If consumer spending is starting to recover, that means you've got signs that the economy is starting to recover," said Andrew Bartels, an analyst at Forrester Research Inc.

Bartels and other analysts said shrinking business inventories that also were cited in the Commerce Department report may spur increased production to meet the growing consumer demand. Moreover, the federal government's economic stimulus spending under the $787 billion bill signed by President Barack Obama in February has yet to fully kick in.

The first-quarter decline in inventories "is a classic sign of reaching a bottom, because now the shelves are empty," said Frank Scavo, president of Computer Economics Inc., a market research firm in Irvine, Calif.

But overall, the first quarter was rougher than expected for the economy, and the drop-off in GDP followed a similarly sharp 6.3 percent decline during the fourth quarter of last year.

IT vendors were among the businesses that had a tough time in Q1. For instance, Microsoft Corp. reported a six percent revenue decline year-to-year, while IBM said its revenue fell by 11 percent. SAP AG Wednesday reported a 33 percent drop in software sales; its total revenue declined by only three percent, but that was thanks largely to increases in software support fees that took effect Jan. 1.

The data released by the Commerce Department explains why the revenues of tech vendors were down during the first quarter. The agency's report shows that spending on software dropped by eight percent in Q1 and that purchases of computers and peripherals were off by 25 percent, Bartels said.

But with the consumer-spending data suggesting that the economic downturn is flattening out or perhaps even coming to an end, Bartels expects businesses to revisit their capital investment plans and decide that they might have overreacted in making spending cuts. And although federal spending was down four percent in the first quarter, the stimulus plan "is going to turn government spending from negative to positive very quickly," he said.

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