“Prediction is Very Difficult, Especially If It's About the Future"
Posted on Wed, Jan 04, 2012
This quote, attributed to the Danish physicist, Niels Bohr, reminds us of the futility of trying to accurately predict what’s ahead for the economy as we begin a new year. Following on the heels of the volatility we experienced in 2011, it’s probably a safe bet to say that 2012 will serve up surprises of its own. Overall, however, we remain cautiously optimistic for the year ahead, looking for a slow - but improving - general trend that maybe obscured by the ebbs and flows of the market.
It’s hard, for instance, to argue with the consensus that U.S. GDP growth will remain at a positive, but slow, pace of 1.5% to 2.5% in the year ahead. Many of the challenges present in 2011 will persist in 2012: the poor housing market, high unemployment, European debt problems, and slowing Chinese growth. Additionally, with 2012 being an election year, not much is expected of Washington to boost the economy as politicians dig in their heels. However, another U.S. recession is not likely as companies continue to experience strong demand for products abroad, positive earnings growth, and are better positioned than in years past with large cash reserves and stronger balance sheets.
Within the realm of IT, this positive trend is supported by our 3Q 2011 update of the MIT Index (Maven Wave Partners IT Investment Index, a bellwether measure of aggregate spending on information technology) and the MIV Index (The Maven Wave Partners IT Value Index, tracking corporate earnings in relationship to spending on the Information Technology workforce). For 3Q 2011, our MIT model had predicted that spending would be somewhat weaker (down 5%) as companies continued to digest the substantial increase in IT investment made earlier in 2011. In reality, third quarter results were more upbeat as the MIT rose to 142.6, up just over 2% over the previous quarter and driven by sequential quarterly increases across the board with particular strength in hardware sales and workforce spending. The same held true for the MIV Index, which rose just over 8% sequentially to $21.03 (meaning a dollar in IT workforce spending is worth $21.03 in corporate profit). Download the full results here.
With the continued overhang in the European sovereign debt market, a gridlocked US Congress, and a potentially vigorous 2012 election cycle in the US, we remain vigilant for a break in the action, but the numbers seem to bode well for 2012.