Fears rise in IT circles over new economic downturn

Federal debt talk impasse isn't helping the mood at all, but will it affect IT spending and hiring?

WASHINGTON - The IT sector has done reasonably well coming out of the recession. More IT budgets this year were up than down and hiring is rising. But after months of gains, there are new worries that the U.S. economic recovery is in trouble.

The most obvious indicator is this month's U.S. Labor Department report that said only 18,000 jobs were added in June to the economy, which could be signaling another quarter of weak GDP growth. GDP was up 1.9% in the first quarter after growing 3.1% in the fourth quarter of last year.

The political volatility over the debt ceiling isn't helping. Although there is the expectation that cooler heads will prevail in Congress, there's no sign of it and it is making people nervous.

"There is a palpable sense of a slowdown or less of a recovery over the last couple of months then earlier in the year," said Frank Scavo, president of research firm Computer Economics.

The concern about the economy alongside the possibility of a U.S. default, which the government says will be reached Aug. 2, may impact IT spending decisions.

"The uncertainty that this is bringing to decision makers in the executive suite is not good for spending initiatives," Scavo said.

Andrew Bartels, an analyst at Forrester Research, says: "I don't yet see a double dip [recession], but I'm getting very, very nervous about how strong the recovery is going to be."

The impasse over the debt ceiling has Bartels "extremely nervous."

"It is as scary as hell to have Republican presidential candidates and Republican congressmen saying we don't need to raise the debt ceiling -- I don't understand what planet these guys are living on," Bartels said.

Among them is Michele Bachmann (R-Minn.), the chair of the House Tea Party Caucus, who reiterated her opposition Wednesday to raising the debt ceiling.

Bartels said a default on Aug. 2 could have a severe impact on financial markets as well as increase interest rates. But he also warns that a deal with significant and immediate cuts in federal spending could cause a recession as well.

Coming out of the earlier downtown, businesses have been more willing to spend on IT equipment than people, something that Bartels said has been true for the last 18 months.

But IT hiring has been improving. Since January, 55,500 IT jobs have been added in the U.S., according to the Bureau of Labor Statistics analyzed by Janco Associates in its mid-year IT Salary Survey, released Wednesday.

The total mean compensation for all IT professions in 73 job categories that range from CIO to data entry operator increased .35% to $77,873, which puts overall compensation back to January 2008 levels, said Victor Janulaitis, Janco's CEO. The data is gathered from approximately 800 firms, he said.

Janulaitis said the federal budget problems are a concern, but so are energy prices, which are being artificially reduced by release of U.S. oil reserves.

"Right now there is feeling amongst a number of organizations that we are going to go into a second dip of a recession, and that second dip could be deeper than the current dip," Janulaitis said.

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at  @DCgov or subscribe to Patrick's RSS feed . His e-mail address is pthibodeau@computerworld.com.

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