Optimism Bounces Back Above Early 2001 Levels

With the economic recovery beginning to accelerate, the confidence of technology buyers is on the upswing as well. InformationWeek Research's December IT Confidence Index hit its highest level since we began the survey of business-technology managers in March 2001. The IT Confidence Index's 1,402 mark is up 32% from the previous quarter and 47% from the same quarter a year ago. The index hit its lowest point of the past three years in March at 757.

Amid the soaring optimism on the economy, there remains considerable caution about spending on business technology. At IPS Corp., tech spending has been rising in lockstep with revenue--about 10% a year. The $100-million-plus maker of construction materials has been investing in a system to monitor the quality of its products. Similarly, the company that holds the franchise in Atlanta, Houston, Pittsburgh, and central New Jersey for carpet cleaner Stanley Steemer International Inc. is upping its IT spending commensurate with revenue growth, investing in servers and internal networks. "We're spending more but not significantly more," says Barry Goldberger, CFO of the company, which has about $11 million in annual revenue.

A sizable majority of surveyed executives have a positive outlook about the prospects of their companies (68%), their industries (57%), and the economy as a whole (62%). Yet there's far less of that optimism when it comes to IT budgets. Only 39% have a positive view of them. However, only 13% view their IT budgets negatively, compared with almost a quarter two years ago.

With 82% foreseeing revenue growth next year, nearly half project higher spending on IT in the coming year. Even companies in industries that lag in revenue growth appear poised to increase IT spending when their sectors join the recovery. "We're waiting for work to pick up and have plans in place [to invest in new IT], but we'll be cautious," says Reg Gagliardo, VP of corporate resources and technology at Burns and Roe Enterprise Inc., a designer and builder of power plants with $130 million in annual revenue.

The IT Confidence Index optimism is reflected in other surveys released last week. The Conference Board Index of Leading Economic Indicators rose a healthy 0.3% last month, suggesting the economic rebound will grow in 2004. The U.S. Commerce Department issued Digital Economy 2003, its fourth annual report on tech-nology and the economy, which showed that spending on IT is growing at twice the rate of the economy. Indeed, the department estimates that real gross domestic product grew 2.9% this year and that more than a quarter of that came from IT-producing industries.

Phil Bond, Commerce undersecretary for technology, sees two categories where increased IT spending will occur: companies that have waited for the recovery--and corresponding increased revenue--to invest heavily in technology and small and midsize businesses that want to gain the productivity efficiencies they've seen in their bigger counterparts.

Many large companies have bought big-ticket items such as ERP systems and the technologies needed to build an Internet platform. But significant investments building on those platforms--technologies such as radio-frequency identification tags to track inventory and shipments--could push overall spending up to or even beyond the levels of the boom days, Bond predicts. "There's a growing appreciation of how much more competitive an IT-intensive company is," Bond says. "That makes me more optimistic about the future prospects of the economy."