To understand what's driving the tech sector's continuing doldrums, Forrester Research compared the industry's growth with shifts in the overall U.S. economy over the past 30 years. According to a new Forrester brief, "Tech Recovery Update: The Tipping Point In 2003," by Principal Analyst Bruce D. Temkin, the technology sector's growth has become increasingly correlated to GDP growth rates.
- Tech sector growth occurs when nominal GDP growth exceeds 4.5 percent over the previous year. This is what Forrester calls the "technology tipping point." The economy hasn't outpaced the tipping point since Q4 2000, when nominal GDP growth was 4.6 percent.
- The tech economy is tightly linked to the overall U.S. economy, but it tends to expand and contract more dramatically. For every 1 percent of GDP growth above the tipping point, the tech industry tends to grow by 9.5 percent. Why? Businesses and consumers delay tech purchases during slow times but quickly release pent-up demand when the economy picks up.
- Tech's revival depends on the economic recovery. Since the U.S. macro slowdown began last year, the economy has remained below the tech sector tipping point for six consecutive quarters longer than during nine of the past 10 recessionary periods dating back to 1948.
- Forrester did not attempt to predict overall economic growth but used estimates from other economists within its model. Based on those assumptions, Forrester's latest analysis projects that the tech sector will end the year 7.9 percent below 2001 levels. Growth will return in 2003, expanding by 5.6 percent (based on a nominal GDP growth forecast of 5 percent). Tech sector revenues will expand in 2004 by 10.7 percent (based on a nominal GDP growth forecast of 5.5 percent).
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