Issue link: http://cp.revolio.com/i/207723
I T and data centers are relatively strong in the U.S. compared with other markets, such as manufacturing. Despite growing demand for services, however, the industry cannot escape the implications of the broader economy. The mantra of recovery began almost as soon as the economy bottomed out during the Great Recession, but the conditions that led to the recession remain largely unchanged. Factors such as a blistering stock market and an improving housing market may point to better days ahead, but other economic indicators contradict optimism that is based solely on these markets. For IT in particular, the present uncertainty of the broader economy is hindering—but not entirely stopping—growth. Making accurate prognostications about markets is obviously difficult, particularly when trying to pin down a time frame. Ignoring precise dates, however, current trends point to the likely outcomes of government policies, consumer behavior and market directions as they interact with each other. Technology Market Trends According to research firm Gartner, total global IT spending in 2012 was $3,648 billion, a rise of 2.5% over 2011. Data center systems saw a 1.8% uptick in spending to $140 billion, and devices saw the greatest increase, rising 10.9% to $676 billion. Telecom services, the biggest segment, declined 0.7% to $1,641 billion. Although 2012 seemed to be building some momentum, Gartner's estimates for 2013 spending fell steadily throughout the year. Its 4Q12 growth estimate was a considerable 4.2%. Subsequent quarters saw that estimate decline, however, from 4.1% in 1Q13 to a meager 0.8% just two quarters later. But despite the mild stagnation in 2013, Gartner is predicting a surge in growth in 2014 and beyond, exceeding 3.5% per year through 2017. Bureau of Labor Statistics data indicates a 0.7% drop in unemployment for the information sector, reaching 6.6% in August 2013. The TechServe Alliance estimated a 5.93% increase in IT employment between June 2012 and June 2013, following a strong and steady upward trend. Interestingly, a growing debate over the need for more STEM (science, technology, engineering and math) focus in schools is casting doubt on whether a dearth of IT professionals actually exists, despite claims by technology www.datacenterjournal.com companies and politicians. A 6.6% unemployment figure, although decent compared with other industries, still suggests an oversupply of labor. Technology companies in 2013 made their perennial calls for changes to the H-1B visa program to increase the number of foreign workers, but reasons behind these requests may center more on the captive nature of working in the U.S. under a visa than on any technical superiority of foreign professionals. On the securities side, the Nasdaq index saw a steady increase, picking up steam after a bumpy 2012. The index has approached 4,000, beating pre-recession highs, apart from the dot-com-bubble maximum of just over 5,000. As always, stars rose and fell, with companies like BlackBerry struggling and with companies like Microsoft seeing a moderate rise despite lingering questions about their future. Monetary Policy Thanks to the Federal Reserve's policy of "quantitative easing," stock prices are likely poor indicators of the fiscal state of IT, or any other industry. Ignoring inflation (which has largely hit food and energy more than other consumer goods), the simple fact of a steady monthly flow of at least $85 billion into the markets drives up prices, as large investors have more funds to play with. And with the artificially low interest rates (near zero) making most other traditional investment opportunities all but worthless, the stock market gains greater traction simply because it is the only game in town providing a return on investors' money. The upcoming switch of the Fed chairmanship from Ben Bernanke to Janet Yellen means monetary policy is unlikely to see any major changes as the central bank, under new leadership, continues its attempts to improve the economy by printing money with no value to back it. On the government side, the Federal Reserve will continue to enable federal deficits approaching $1 trillion a year. The federal debt in 4Q13 stands around $17 trillion, or about 107% of GDP. According to USDebtClock.org, interest payments on the debt amount to roughly $260 billion per year—a budget item that is held in check only by the Federal Reserve's efforts to keep interest rates low. Should those rates increase to market levels, debt payments would consume an even greater portion of the budget, exacerbating the situation pending major government policy changes. For IT, the situation has several implications as long as the status quo is maintained. First, investors will be ready to hand out money to almost any company willing to make an initial public offering (IPO); the latest candidate, Twitter, is seeking $1 billion, for instance. Second, governments—particularly at the federal level—will continue to spend large amounts on IT projects. The $2 billion NSA data center and $634 million federal healthinsurance exchange are just two (albeit less than successful) examples. Even during the government shutdown (which actually only involves a miniscule 17% of operations), talk of any real changes in spending habits is largely absent. Sequestration, which was largely cuts to projected increases in spending rather than actual declines in absolute spending, did little to change budget dynamics. Third, IT will remain essentially an employer's market as government and Federal Reserve policies continue to burden employers. Risk of Default The government shutdown in the fourth quarter resulted in part from disagreement over raising the debt ceiling. Apart from an increase in the national credit limit, the federal government would be unable to maintain current spending, which tops $3.5 trillion annually and exceeds income by some $800 billion. The risk here is default: failure to pay on promises already made. Although the debt ceiling will likely be increased (the party in power always succeeds in raising it, even if the party out of power tries to fight it), default is essentially inevitable apart from real, painful changes to the budget. Estimates of federal unfunded liabilities—that is, promised payments with no clear source of income to support them—are as high as $200 trillion. Estimates based on Federal Reserve and U.S. Department of Treasury data suggest a number around $125 trillion. Either way, this number represents a gargantuan real debt that stands no chance of ever being paid; some of the promises will be broken. The government may seek a way around outright default through inflation, which is effectively a default since creditors and other parties that are promised certain benefits will not receive the same promised value, even though they may receive the same number of dollars. (In other words, what good is a $2,000 Social Security check if a loaf of bread costs $500?) THE DATA CENTER JOURNAL | 27