IDC's FutureScan: Katrina Hits IT Spending Expectations
This month's IDC FUTURESCAN seems to show the impact of Katrina - or is it the prospect of permanently higher oil prices? - on IT buyers. Much more so than in the background economic indicators, like the stock market, or GDP and profit forecasts. We had predicted this reaction when we posted IDC FutureScan last month two days after Katrina made landfall.
Oct 2005

FRAMINGHAM, Mass., October, 2005 – The alignment IDC reported in the September release of IDC FutureScan fell apart this month in the wake of Hurricane Katrina and the prospect of permanently higher oil prices. In fact, the IT and line-of-business expectations for IT spending over the next twelve months fell to 2.9% from last month's 6.1%, the lowest the buyer intent indicator has been since IDC started FutureScan in the beginning of 2004.

"This looks like a visceral reaction to Katrina from our survey population of executives," said John Gantz, IDC's Chief Research Officer. "Most of the economic forecasts around the impact of Katrina seem to indicate a short-term hit to the U.S. economy in 2005, followed by a rebuilding rebound in 2006. As this news gets absorbed by IT and business executives, we expect their IT spending expectations to recover."

Gantz pointed out that the macroeconomic indicators fell as well, but more as a function of lower GDP and profit forecasts for 2006 over 2005 than any short term reaction to Katrina. IDC's own forecast for U.S. IT spending over the next twelve months is just under 5%.

"We do believe the situation is more volatile than it has been in months past," noted Gantz, "specifically around the potential for oil and gas prices to rise. For our own forecasting purposes, we are assuming that the price of gasoline in the U.S. will stay under $3.00, but we are IT market analysts, not oil and gas, or weather analysts. If prices go much higher than that, or high natural gas and home heating oil prices collide with a cold winter, then we might see a cascade effect as consumer spending and confidence falls, affecting business results and affecting IT spending."

FutureScan is a set of market metrics that measure supply and demand in the IT industry based on leading indicators and customer surveys. Values reflect expectations of future growth, with an index value of 1000 indicating zero growth and each additional 10 points representing roughly 1% of expected growth or contraction.

For October, Buyer Intent, which reflects market demand for IT products and services over the next 12 months, fell to 1029, down from 1061 in September. Meanwhile, the Market Indicators number, which combines input from economic and IT industry revenue forecasts, dropped to 1058 from 1064.

FutureScan results for October and prior months can be viewed at www.idc.com/futurescan.


In fact, this is the lowest expectation for future 12-month spending since we started tracking it in support off IDC FutureScan in the beginning of 2004.

The macroeconomic indicators also dropped but less drastically. IDC's post-Katrina analysis and market forecasting assumptions are that there will be a hit to the U.S. economy in the second half of 2005 but a rebuilding rebound in 2006. Over the next twelve months the outlook should even out.

Of course, we are also assuming that the price of gasoline doesn't skyrocket above $3.00 a gallon and stay there.

And, as often is the case when these two indicators diverge, IDC's forecast for U.S. IT spending growth over the next 12 months sits squarely between the two.

Our monthly caveat: IDC believes that no single measure can confidently predict future IT spending, but that a combination of supply side, demand side, and macroeconomic indicators is required.



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History
Market indicators and demand-side indicators diverged sharply this month, presumably because of the reaction of surveyed executives to Hurricane Katrina and the realization that oil prices wouldn't be coming down any time soon.

Note that most post-Katrina consumer and business confidence indicators dropped sharply in late September. The the University of Michigan's widely watched consumer confidence index dropped to its lowest point since 1992.

Since the market indicators are a market basket of measures less dependent on psychology-of-the-moment - they tended to show a more muted reaction. The stock market, for instance, didn't tumble.

Because the buyer intent metric is based on survey results and is simply an opinion of the sample at the time, we feel that it is likely to be more volatile than the market indicators. Keep this in mind using these metrics.

We also expect it to rebound next month - and the market indicators perhaps to drop.

IDC FUTURESCAN
is a collection of metrics of IT industry leading indicators and customer surveys. Values are based on expectations of future growth, with a value of 1000 equating to zero growth and each 10 points representing roughly 1% of expected growth.

These are external indicators only and don't represent IDC's forecast for the market, which is based on many more inputs and which relies on strict methodologies and market definitions.