Forrester index finds US tech sector healthy for now

Firm finds technology industry is as healthy as its been in about three years

The U.S. technology industry has recovered from a recession of 2001 and 2002 and is about as healthy as it's been in three years, according to a new tech sector economic index released Monday.

A steady climb in several tech industry metrics between 2003 and the third quarter of 2005 has mostly reversed declines in the industry in 2001 and 2002, according to analyst Forrester Research Inc. and the Information Technology Association of America (ITAA), a trade group.

The first quarterly Forrester/ITAA U.S. Tech Sector Index, released Monday, is based on 11 measures, including the revenue of 39 major IT vendors, venture capital investments, U.S. technology exports and IT spending outlooks. The new index is the "first in-depth look" at the health of the U.S. IT sector, said Harris Miller, president of ITAA.

"Any suggestion that information technology is yesterday's news, doesn't matter, or has lost its edge as an economic driver is just plain wrong," Miller said. "In fact, major trends indicate the opposite is true."

But Forrester officials said there are some signs of a slow-down ahead. Early reports have chief executive officers (CIOs) confidence measures down in the last quarter of this year, and large U.S. companies are projecting only small budget increases for 2006, Forrester said. The U.S. tech industry could see a "mild" downturn in 2007 after an up-and-down 2006, said George Colony, Forrester's chairman and chief executive officer.

The tech industry has "clearly recovered" from the recession of 2001-02, Colony said.

The two organizations didn't release in-depth details of the guts of the index during a press conference, but they noted that there's been steady improvement since 2003.

Using 100 points as the 2002 baseline for the health of the U.S. IT sector, the index stood at 121.6 in the third quarter of 2005, slightly lower than a score of 122.3 in the fourth quarter of 2004. The index dipped to 113.5 in the first quarter of this year. The rise in the scores this year was driven partly by CIOs' confidence in the health of their budgets and future spending on IT, Forrester said.

U.S. supply indicators have remained flat since 2003, with offshore outsourcing and imports filling a gap between supply and demand, Forrester said. But while U.S. IT employment was up by more than 15,000 in the third quarter of 2005, prices fell, spurred by the falling prices of hardware.

By comparison, the index stood at 89.2 in the first quarter of 2003 and 110.3 in the first quarter of 2004.

The two organizations have been talking about a comprehensive tech index for a couple of years, Miller said. ITAA was interested in seeing a broad look at the industry following recent concerns expressed in the media about the continued relevance of the industry, he said.

"Just as there was an overreaction in the media and the political world ... during the [Internet] bubble, there was overreaction when we hit the recession," Miller said. "There were a lot of articles being written about the end of tech, sort of coupled with a lot of visibility on the offshoring issue. People were thinking, 'Not only has the bubble burst, but tech industry is going away.'

"There are no ... composite metrics out there that told a longer-term or more systematic story," Miller added.

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