Business Economy Battles Post Attack

The Week in Research
Business Economy Battles Post Attack

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By Bonnie Markowitz
editorial research director, VARBusiness

3:14 PM EDT Fri. Oct. 26, 2001

The terrorist attacks on the nation will likely magnify a downward tug on the economy for months to come. The latest research from Cahners In-Stat, a leading provider of marketing solutions to business professionals, indicates that overall business IT spending in the United States will fall 12 percent this year due to weak economic conditions. That drop will mark the first decline in the past decade.

Spending by smaller businesses, with less than 100 full-time employees, is expected to fall the most--at 17 percent, Cahners In-Stat says.

"The unfortunate reality is that many businesses overinvested in IT products and services in 2000, creating conditions for sluggish demand in 2001," according to a statement by Kneko Burney, director of In-Stat's e-business infrastructure and services research. "This alone was expected to lead to a decline in IT spending prior to Sept. 11."

Within the solution-provider community, channel executives report end-user demand for technology remains depressed. In a just-announced "Channel Tracker" study for the third quarter conducted by Global Touch, a high-tech industry consultancy, almost 90 percent of U.S. respondents believe their third quarter revenues are flat or below second quarter sales.

"We believe that the lack of demand and volume of product purchases reported by survey participants are troubling signs that could have significant impact across the IT industry, particularly on its channel partners," says Denise Sangster, president and CEO of Global Touch.

According to the findings, third-quarter PC sales appear to have been the hardest hit, falling 32 percent in year-over-year revenue.

A bright spot on an otherwise bleak horizon may be consumer product IT spending. In a recent survey of approximately 100 U.S. consumer goods company executives conducted for Cap Gemini Ernst & Young, 51 percent of domestic consumer goods companies are expected to increase their IT budgets next year. Fifty-seven percent of those companies are expected to implement advanced planning and scheduling systems by 2003/2004, according to the research.

In that vein, businesses appear to have been bothered more by the attacks than consumers. In fact, according to the "Beige Book," a summary of economic conditions across the Federal Reserve's 12 districts, consumer spending may not have dropped as a direct result of the terrorist attacks, but rather by vulnerabilities caused by prevailing economic uncertainties.

All in all, the Beige Book reports "weak economic activity in September and the first weeks of October," with high-tech industries in the Boston, Dallas and San Francisco regions notably affected by declining demand.