Robust U.S. Economy Gives Channel A Lift

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New economic data out this week paints a picture of strong economic growth, setting the foundation for further gains in business IT spending and, in turn, keeping smiles on most solution providers' faces.

The Commerce Department reported that gross domestic product, the country's total output of goods and services, rose at a revised, inflation-adjusted annual rate of 4.4 percent in the first quarter of this year. That was a slight upward revision from the estimate of 4.2 percent reported last month, and it actually exceeded the fourth-quarter 2003 figure.

More important for the channel, business investment in information processing equipment and software rose at an annual rate of 17 percent in the first quarter. That marked the fifth straight double-digit quarterly increase, and it was down only slightly from figures in the fourth quarter of last year.

Economists also expect an upbeat employment report on Friday. Expectations are for a gain of 216,000 jobs in May, but recent economic data from the manufacturing sector suggest that number could go higher, possibly reaching 300,000. The manufacturing sector recently reported its best job-growth figures since the late 1970s and 2004 is so far shaping up to be one of the better years for manufacturing.

But even if actual job creation only matches expectations, it would still mean that about 1 million jobs have been created in the past six months, the best growth rate since the late 1990s. Employment is frequently the last indicator to rebound during an economic recovery, since businesses hold back on hiring until they have determined that a recovery has staying power. The fact that business are now hiring at a faster pace reflects their growing belief that the economy will continue to improve.

These economic trends have two implications for the channel: Business profits are likely to continue rising and, in turn, IT spending is likely to climb in the coming months.

Profitability is one of the strongest factors affecting technology spending by large and small companies, according to analysis by Forrester Research. The SMB market is likely to continue leading the way, but data from CRN's Business Spending Survey show that enterprises are also boosting their spending plans.

Solution providers also should take another look at the manufacturing sector, where an accelerating recovery could spawn new sales opportunities. A recent CRN survey showed that only one-third of solution providers are operating in the manufacturing sector. And growth in that sector is widespread, including industries such as chemicals and transportation, according to data from the Institute for Supply Management, a 45,000-member trade and research group of business purchasing managers and suppliers.

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