IT as an economic indicator

By Patrick Gray

August 10, 2011, 1:35 PM PDT

Takeaway: Patrick Gray finds some reason for hope — at least as indicated by renewed hiring in IT — in the midst of a chaotic economic landscape.

A good friend of mine who is on the development side of IT recently mentioned that he has been fielding an increasing number of headhunter calls and that IT hiring seems to be on the rise. As we discussed this, he mentioned that IT hiring seemed like a good leading indicator of the direction of the general economy, and as we delved deeper into the discussion, the correlation between IT spending and the larger economy seemed quite compelling.

While far more qualified economic gurus might dispute this “economic theory” developed over a couple of burgers in the course of several minutes, there do seem to be some strong indicators within the IT profession of where the economy is going, and despite the abundance of doom and gloom about the global economy, IT just might be telling a different story.

The axe man leaveth

On the negative side, IT seems to be one of the corporate functions that is first subject to cost-cutting once the economy makes a turn for the worse. It’s easy to see why: IT rarely generates revenue directly from customers, it often accounts for a large portion of corporate expenditures, and the biggest numbers on the expense side of the ledger usually are the first to get cut. As anyone who has lived through the last few years can attest, as soon as companies feel an economic pinch, IT spending (and thus IT staff) are likely to feel the immediate pain as the axe man relentlessly thins the ranks. More recently, as industry surveys and my friend’s anecdotal experience seem to show, this trend is reversing and companies are hiring, rather than firing, IT staff. If IT is the first to be culled when clouds appear on the horizon, presumably it is also the first to be restored as demand necessitates more capacity.

IT spending, and hiring in particular, is a vote of confidence

I would contend that IT spending is a vote of confidence in the future for two reasons. First, much of IT’s work is future-focused; it’s long-term projects like enterprise systems implementations, building technology-based products, data management and mining, or merger and acquisition-related systems integration work. With some notable exceptions like “burning platforms” or compliance-mandated systems, investing in these types of systems and technologies signals an expectation of future growth for the company as a whole.

The second vote of confidence is a bit ironic in that IT is so good at outsourcing and offshoring, making direct hiring seem even more applicable as a sign of confidence in the future. Most IT organizations are quite competent at using outsourced talent for short-term needs, reducing the necessity to hire staff. Therefore, when direct IT hiring ticks up, it stands to reason that companies see long-term growth ahead that is better served by a long-term hire than a short-term outsider.

More is more

In summary, more spending seems to be a strong indicator of more transactional volume within a company. If you need more hardware and staff to maintain your backoffice invoicing application, presumably you have (or anticipate) a higher volume of invoices. While the market gyrations of the last few days have been nothing but chaotic, an uptick in IT spending just might be the light at the end of the recession tunnel currently plaguing global markets.

http://www.techrepublic.com/blog/tech-manager/it-as-an-economic-indicator/6570?tag=nl.e098