Get With the Program

Of course, the plucky engine we all read about as kids isn’t really an appropriate metaphor for us spenders. After all, consumer spending represents two-thirds of our total economy. But we consumers, buoyed by tax cuts and mortgage refinancing, have done our best to buy the economy out of the doldrums. If corporate America’s capital spending budgets had carried their weight, we wouldn’t have spent the past 18 months looking for that corner that the recovery is just around.

The economic data that came out of Washington a few weeks back suggest that the economy, and business spending, are picking up steam and that we could be on the verge of a breakout from the months of constant job losses. The gross domestic product grew 2.4% in the second quarter, up from an anemic 1.4% annual rate in the prior two quarters. That gets us headed in the right direction with most economists believing that we need a sustained annual rate of 3.5% GDP growth to spark payroll increases.

It’s no surprise that military spending was the largest contributor to the second quarter growth, followed by increases in consumer outlays of 3.3%.

There are even signs that miserly business managers are loosening the purse strings. In mid-July, testifying before Congress, Fed Chairman Alan Greenspan had a clear message: get on the bandwagon corporate America. And when Chairman Alan speaks, executives apparently listen. Spending on equipment has been inching upward for the past three quarters, but registered a solid 7.5% gain in the April-June period, the strongest quarterly performance in three years.

Nevertheless, the economy remains in a precarious state. All of which brings us back to the mindset of consumers. The same week that the celebratory GDP numbers came out, the Conference Board released its latest data on consumer confidence. The consensus among economists was that the index would register a slight increase from June’s 83.5 level to 85. But consumers reversed field and the index took an unexpectedly sharp drop in July to 76.6. Concerns over unemployment, at 6.4%, were the culprit. But with new applications for unemployment dropping to a five-month low in July, this appears to be a temporary set back.

All this represents good news for the channel. With business spending finally gaining momentum as we head into the traditionally stronger third and fourth quarters, and with a slew of new technologies ready to rollout in the months ahead, signs are this rebound is for real. But Solution Providers would be well served not to jettison the ROI calculators that carried them through the downturn. The natural replacement cycle will bring some business, but clients still have a laser-like focus on productivity. Selling the underlying efficiencies of new technologies is what will carry the day. And vendors who define and communicate those efficiencies to their partners will be the ones that benefit.

Charles Humphrey is Vice President, Channel Strategies and New Product Development Technology Solutions Group, at CMP Media LLC., parent company of VARBusiness.