July 10, 2006

US IT Spending Summary: Q1 2006

Growth In New Investment Is Slowing, IT Staff Spending Is Up After Slow 2005

by Andrew Bartels

with Tom Pohlmann, Katherine Brown

Executive Summary (This is a document excerpt)

First-quarter 2006 data on US business investment in information technology goods from both US government and vendor sources showed growth of 9%, without including IT services. The vendor data, which we have found to be more reliable, showed a flattening of growth rates after several quarters of slowing growth. The government data, on the other hand, showed growth remaining in the 9% to 10% range. Investment in software was strong at 11% in both measures, and investment in communications equipment was similar: Vendor data reflected a 10% gain, while government reported a 17% gain. However, investment in computer equipment slowed to 7% growth in both the government and the vendor data. The Q1 2006 data was slightly stronger than we expected, but Q2 growth should be a bit slower, at 6% for the vendor data. Forrester expects that 2006 overall growth in investment will be 9% in the government data, with a sharp slowdown to 1% growth likely for 2007. Our IT spending forecast (with depreciation on capital investment) is still on target for 7% growth in 2006, slowing to 4% in 2007. Spending on IT staff salaries and benefits will rise by almost 5% in 2006, after weaker than expected growth of 3% in 2005.

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