Small Business a Bright Spot in IT Spending Forecast

November, 2011

The only silver lining in an otherwise downbeat forecast for IT spending in the coming year is that smaller businesses are showing greater strength than larger organizations, a reversal from the prior year when the global economy was helping buoy the U.S. manufacturing sector.

On the surface, our annual IT spending and staffing forecast for 2012 is similar to the prior year’s outcome: IT operational budgets will grow slowly, organizations are pulling back on capital spending, and hiring remains anemic. The long-unwinding sovereign debt crisis is creating an atmosphere of uncertainty that is holding IT budgets hostage, setting the stage for another year of slow, jobless growth in IT spending.

Our annual fourth quarter survey uncovered some less obvious findings for the coming year, some of which may provide grounds for believing that the outlook is getting brighter. Our study indicates that smaller organizations will be the leaders in adding IT workers and increasing spending in the coming year, which is a positive sign of a more sustainable turnaround in the domestic U.S. economy.

Figure 1 shows that IT operational budgets should grow about 2.0% at the median for small organizations. That compares with growth of 0.5% and 0.8% for midsize and large organizations, respectively.

Outlook Fig RB1 - Small Business a Bright Spot in IT Spending Forecast 

“Small-business spending often precedes a recovery, so this is a positive indicator,” said Frank Scavo, president of Computer Economics. “But there is a great deal of economic uncertainty, due in part to the European debt crisis, which leads IT executives to remain cautious with their spending and hiring plans.”

The study defines small businesses as those with from $40 million to $350 million in annual revenue, midsize organizations at those with $350 million to $1 billion in revenue, and large organizations as those with revenue of $1 billion or greater.

The outlook also remains patchy when examined on a sector-by-sector basis. Governments are continuing their retrenchment, with state and local government spending and hiring coming under significant budget pressures. Likewise, the IT spending trend for the financial services sector is dour. Sectors with more positive outlooks include healthcare, professional and technical services, and retail and distribution. Manufacturing again shows some strength.

When we look beyond the U.S. and Canada, we find that plans for IT spending are relatively robust throughout the Asia-Pacific region. As such, our 2012 outlook is not entirely pessimistic, and if the uncertainty that pervades the economy today should lift, the revival of spending by small businesses and sectors such as retail could well lead to a broader improvement in technology spending and perhaps even new hiring.

This Research Byte is a summary of the full study, IT Spending and Staffing Outlook in 2012. This annual study provides guidance for IT executives as they firm up spending plans for the coming year. It is also useful for IT product and service providers in forecasting economic trends for IT spending for 2012. The report is based on our fourth-quarter in-depth survey of 157 organizations worldwide, including about 100 IT organizations in the U.S. and Canada, with more than $40 million in annual revenue.

The study assesses the spending and staffing actions IT managers are currently taking, the budget actions they took over the past year, and what they are including in their budget plans for the year ahead. Our outlook report provides 2012 forecasts for IT operational spending, IT capital spending, and IT hiring by organization size. We also forecast pay raises for IT workers.

This Research Byte is a brief overview of our report on this subject, IT Spending and Staffing Outlook in 2012. The full report is available at no charge for Computer Economics clients, or it may be purchased by non-clients directly from our website (click for pricing).