Barely solvent European nations, social unrest, bubble fears in emerging economies, and a dysfunctional American federal government - we thought the uncertainty at the beginning of the year was high, but now we long for those more serene times. The question we are getting most the last few weeks is whether the current instability will impact IT spending for the balance of 2011 and into 2012. To at least partially answer that, let's focus in on the United States.
The recent game of chicken that was the debt ceiling debate was popularly reported as a "self inflicted wound" by both mainstream and business media outlets. As it relates to the health of the manufacturing industry that is certainly an accurate depiction, but very likely temporary. Remember that the US recovery, such as it was, was being driven by manufacturing and, more specifically, by the export of manufactured goods.
So put yourself in the shoes of a foreign buyer of US made capital goods. The business press was speculating on the possible (and, as it turns out, eventual) downgrading of the federal government's credit rating and the impact that would have on interest rates, namely a possible spike. Higher interest rates would be tied to a weaker dollar and a lower price point for that equipment. In other words, it paid of that foreign buyer to wait to place its order. So the American export momentum was substantially halted by the political process in Washington.
The good news is that the demand for that equipment is still there and that interest rates seem to be defying logic by staying relatively low. In fact, there will be incentive in the next 60 days to place those orders before the dollar deflates. There was also modestly good news on the jobs front but we are hesitant to include that in the analysis as we have said in this space previously that it is about productivity first - jobs are a secondary not primary effect.
So with robust underpinnings thanks to export activity, we don't expect IT spending in manufacturing to deviate from our forecasts for this year and next. In fact, the higher levels of uncertainty and the ever present complexity may even translate to some upside as companies seek to use IT to make better decisions. That is of course, if European nations stay afloat, Middle Eastern governments stabilize, the US government doesn't self destruct, and fast growing economies don't overheat.