Another Post From a Reader
I get plenty of tips & links from those of you that receive my posts via e-mail--thanks keep them coming. This week however, I got my first unsolicited link from a reader that stumbled across my 'blog. Turns out that neither the link or the story that it references are available without subscribing to those publications. The entire text is included here.
BUSINESS 2.0 Online
JOBLINE
The Media Gets It Wrong Again
They are still selling doom and gloom, this time about tech spending. And they have it all ass-backwards.
By Paul Kaihla, November 16, 2004
The national business press is oh-so-over the offshoring story. You will rarely read a headline about that issue in the coming months, even though it was top of mind and top of the fold only a few months ago. After all, the reality distortion field created by the presidential race is history.
But that doesn't mean the media's doom-and-gloom mood has changed. The press will simply look for new economic sob stories. The Wall Street Journal tried to find one just days after the election, when it ran a front-page feature predicting a slump in tech spending by corporations. That was shocking stuff after the big run we've had during the past year. Taking it as gospel, cable-TV commentators immediately jumped on the story and yakked about how this was a bad sign for job creation in the tech sector and the economy in general. Productivity gains from machines replacing people, they claimed, would keep offsetting job creation, and the jobless recovery would continue.
What kills me about this story -- and the punditry it inspired among the bingo callers on the idiot box -- is how much fun I'm now going to have picking it apart. Let's start with the argument about productivity, which is not booming but crashing. That's a good thing if you are concerned about jobs. In the third quarter of last year, for example, productivity growth shot up to 9 percent and job growth was anemic. By the second quarter of this year, productivity growth had plummeted to 2.5 percent -- and the economy was in a hiring boom. Because those two factors sit at opposite ends of a teeter-totter, if you want one leading indicator of a robust labor market in 2005, watch for productivity growth to tread water at the level we saw in the third quarter, about 2 percent. As I've been saying, we've had a productivity recovery, and that phase is now over. So much for technology driving a stake through job creation.
Now let's go back to the Journal's main point about tech. It hinges on the statistic that corporate technology spending only rose by 9 percent this quarter, compared with 15 percent during the first half of the year. The paper goes on to reference Precursor Group, a Washington, D.C., firm that advises institutional investors on technology, which predicts that the rate of growth will go flat or decline slightly in 2005. I have no problem with any of those numbers. However, this isn't a prediction that should scare us. It is, instead, a great example of how you can manipulate data to say whatever you want. The 15 percent growth in corporate IT spending was the same rate we experienced at the peak of the boom. Investment crashed during the subsequent recession, and we've had a dramatic bounce off the bottom. Neither the peak of the boom nor the rebound produced sustainable rates. Nine percent is actually about the historical average for the past two decades. That's healthy.
Here's another way to look at the health of the tech sector. According to an analysis conducted for Business 2.0 by Global Insight economist Phil Hopkins, all spending on technology by both consumers and businesses peaked in 2000 at $511 billion. Hopkins projects that we will match that figure this year and exceed it by more than $50 billion in 2005.
He's not the only one. PricewaterhouseCoopers's highly accurate Management Barometer, a quarterly survey of CFOs and managing directors at America's largest companies, lends weight to that forecast. Well over half of the respondents are planning major new investments during the next 12 months -- up from 44 percent a year ago -- and 42 percent of them are planning tech spending equal to about 16 percent of their total sales. While the last two figures are slightly higher than they were a year ago, Business 2.0 got an advance peek at another PWC survey that's even more bullish. Forty-six percent of the CEOs at 355 of the nation's fastest-growing companies are planning major tech investments during the next year, up from 41 percent a year ago.
In some sectors corporate tech spending will indeed slow during the next year. But I doubt that the overall picture will be as dire as the selective evidence that was presented by the Journal and lapped up by the uncritical talking heads.
I get plenty of tips & links from those of you that receive my posts via e-mail--thanks keep them coming. This week however, I got my first unsolicited link from a reader that stumbled across my 'blog. Turns out that neither the link or the story that it references are available without subscribing to those publications. The entire text is included here.
BUSINESS 2.0 Online
JOBLINE
The Media Gets It Wrong Again
They are still selling doom and gloom, this time about tech spending. And they have it all ass-backwards.
By Paul Kaihla, November 16, 2004
The national business press is oh-so-over the offshoring story. You will rarely read a headline about that issue in the coming months, even though it was top of mind and top of the fold only a few months ago. After all, the reality distortion field created by the presidential race is history.
But that doesn't mean the media's doom-and-gloom mood has changed. The press will simply look for new economic sob stories. The Wall Street Journal tried to find one just days after the election, when it ran a front-page feature predicting a slump in tech spending by corporations. That was shocking stuff after the big run we've had during the past year. Taking it as gospel, cable-TV commentators immediately jumped on the story and yakked about how this was a bad sign for job creation in the tech sector and the economy in general. Productivity gains from machines replacing people, they claimed, would keep offsetting job creation, and the jobless recovery would continue.
What kills me about this story -- and the punditry it inspired among the bingo callers on the idiot box -- is how much fun I'm now going to have picking it apart. Let's start with the argument about productivity, which is not booming but crashing. That's a good thing if you are concerned about jobs. In the third quarter of last year, for example, productivity growth shot up to 9 percent and job growth was anemic. By the second quarter of this year, productivity growth had plummeted to 2.5 percent -- and the economy was in a hiring boom. Because those two factors sit at opposite ends of a teeter-totter, if you want one leading indicator of a robust labor market in 2005, watch for productivity growth to tread water at the level we saw in the third quarter, about 2 percent. As I've been saying, we've had a productivity recovery, and that phase is now over. So much for technology driving a stake through job creation.
Now let's go back to the Journal's main point about tech. It hinges on the statistic that corporate technology spending only rose by 9 percent this quarter, compared with 15 percent during the first half of the year. The paper goes on to reference Precursor Group, a Washington, D.C., firm that advises institutional investors on technology, which predicts that the rate of growth will go flat or decline slightly in 2005. I have no problem with any of those numbers. However, this isn't a prediction that should scare us. It is, instead, a great example of how you can manipulate data to say whatever you want. The 15 percent growth in corporate IT spending was the same rate we experienced at the peak of the boom. Investment crashed during the subsequent recession, and we've had a dramatic bounce off the bottom. Neither the peak of the boom nor the rebound produced sustainable rates. Nine percent is actually about the historical average for the past two decades. That's healthy.
Here's another way to look at the health of the tech sector. According to an analysis conducted for Business 2.0 by Global Insight economist Phil Hopkins, all spending on technology by both consumers and businesses peaked in 2000 at $511 billion. Hopkins projects that we will match that figure this year and exceed it by more than $50 billion in 2005.
He's not the only one. PricewaterhouseCoopers's highly accurate Management Barometer, a quarterly survey of CFOs and managing directors at America's largest companies, lends weight to that forecast. Well over half of the respondents are planning major new investments during the next 12 months -- up from 44 percent a year ago -- and 42 percent of them are planning tech spending equal to about 16 percent of their total sales. While the last two figures are slightly higher than they were a year ago, Business 2.0 got an advance peek at another PWC survey that's even more bullish. Forty-six percent of the CEOs at 355 of the nation's fastest-growing companies are planning major tech investments during the next year, up from 41 percent a year ago.
In some sectors corporate tech spending will indeed slow during the next year. But I doubt that the overall picture will be as dire as the selective evidence that was presented by the Journal and lapped up by the uncritical talking heads.
posted by Mike McGowan at 7:22 PM
