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By Lauren Bielski
When it comes to economic recovery, the good news isn't so good and the bad news casts a long shadow. On May 27, AP reported that the National Association for Business Economics released survey results reinforcing earlier assessments made by Federal Reserve Chairman Ben Bernanke: the recession should be winding down by the fourth quarter.
Still, recovery will be sluggish. And, unemployment, forecasted to rise to 9.8% by year-end, will remain a problem. We are in the era of the thrifty consumer and cautious business.
"Over 2010, the economy will improve very gradually," says Virendra Singh, director of internal forecasting for Moody's Economy, based in Westchester, Pa. "This is because employment won't really see a net improvement until 2011. Consumer spending won't really rebound until then."
In the meantime, says Ken McGee, most CIOs are probably running their shops at full capacity with little down time-although such a vision might seem counterintuitive given the constant stream of bleak economic news that's appeared since the financial crisis spiked.
The Gartner fellow analyst says that nonetheless, the project teams he's tracked are running at breakneck speeds to deal with a throng of projects, ("whatever was asked for by the business users,") which either never stopped coming or were left over from a more expansive era.
This doesn't exactly square up with the image of the cautious business many sources provided CIOZone, but McGee was firm. "I see a lot of big organizations working as hard as they can work to get things done." "Things," he says, can vary by firm type and industry, and he was still examining recently collected data to get a better sense of types of projects still in demand versus others that might see some action in 2010. As of this writing, those details were scarce, but McGee thinks business users were putting nearly the same pressure they always had on the IT workforce to get their pet projects done.
He says that project teams, undoubtedly, saw some work put aside, but from that you shouldn't assume that IT development, upgrades, or one-off projects were held at a standstill.
Prepare your IT shop for the next expansion
McGee' s main point isn't only to correct this writer's misperceptions about the current workload. He also wanted CIOs to wake up and smell the opportunity. "Project managers are already overburdened," McGee explains. "This period just before we hit bottom in the economic cycle is an important one, because it can be a time of analysis. We're urging our clients to get their houses in order and get prepared for the next period of economic expansion," he says. The Gartner fellow went on to describe this as a critical period of assessment, one in which, projects could be rethought to avoid turning out IT work that might prove to be misaligned with business objectives, or otherwise not understood in financial terms by the business units who initially ordered the job.
"For every IT job in the project pipeline, we would ask, is there a business sponsor? Does the business sponsor know both the one-time costs and the ongoing expenses associated with the IT project?" McGee asks. If not, the IT organization could experience trouble when, even as good times return, projects that weren't ferreted and managed properly start to look bad. This might later put them in a position where they would have to simply lay off people. ("During this recession, IT workers have faired pretty well," he says.)
What to expect next
As for the economy itself, most believe the worst is over. In a release on the NABE website, a statement indicated, "while the overall tone remains soft, there are emerging signs that economy is stabilizing."
Following a sharp 6.1% annual rate contraction in the first quarter and another 1.8% drop in the second, NABE forecasters expect real gross national product to rise in the second half of this year, albeit it at a subpar rate of 1.2%. This would result in a hefty 1.2% decline in 2009 (on a fourth-quarter over fourth-quarter basis), on the heels of a 0.8% decline in 2008.
Yet, inflation is expected to moderate, as economic slack builds and as oil prices remain relatively depressed. Moody's Virendra Singh notes that, currently, the telecomm- and durable-goods sectors were improving. "China has undergone massive spending on infrastructure improvements, roads, rail, and so on, the way the U.S. did during the New Deal," Singh explains. This is helping the U.S. industrial sector-firms like Caterpillar-bounce back.
Firms still hanging on to cash
In the late spring of 2009, characterized by changeable weather and a high pollen count, the mood is still cautious, with many companies still hanging on to their cash.
"In the 20 years that we did this survey of IT purchasing patterns, this was as bad as we've ever seen it, rivaling the lull in activity after the 2001 recession," says Frank Scavo, president of Computer Economics, Irvine, Calif. In contrast to McGee, the Computer Economics researcher believed the most IT shops were run "lean and mean," and that most firms had learned their lesson about a bloated project pipeline after the dot com burst.
Scavo says that by 2010, many IT buyers will have delayed normal equipment refresh cycles and major initiatives for two years. Computer Economics expects median annual growth in IT capital budgets in 2010 to rebound between 4% and 5%.
Still, he did agree, in essence, with McGee that not all shops were in lock down during the recession. "We just did another survey and I'm analyzing the results, but I'll tell you that in 2009, 36% of the firms we survey will have increased their outlays in IT despite the recession. Some industries were either in a position to move ahead or perhaps felt they had no choice," Scavo explains. Scavo believes that many executives in the "C suite" remain frozen in terms of major decision making. "The turmoil in the financial markets has created a lingering mood of uncertainty."
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