After three months of consistent IT spending among U.S. businesses, levels dipped precipitously in August because of weakness in small and large businesses, according to the Gartner Technology Demand Index, an index included in a monthly economic indicator service launched by Gartner, Inc. Despite the drop in those segments, the Index shows that midsize businesses are exhibiting strong IT demand.

According to a weekly poll drawn from a 20,000-member Gartner panel of IT decision makers from small, midsize and large businesses, U.S. enterprises spent below their budgeted levels, recording a score of 81 on the Gartner Technology Demand Index for July (an index value of 100 would mean businesses spent exactly what they had budgeted for the month). The Technology Demand Index had remained above 90 during the months of May through July. However continued sluggish IT spending within small and large sized businesses has caused the aggregate current index to retreat to 81. While medium-sized businesses continue to show strength, an IT spending recovery in 2004 will require renewed growth from large and small businesses.

"While current demand among small enterprises has weakened, their strong projected spending in 2004 strengthens the upward momentum provided by midsize enterprises," said David Hankin, senior vice president and general manager of Gartner. "Only large enterprises appear to be consistently sluggish, which does cause some concern over the depth of any future recovery."

The Technology Demand Index shows that current and projected IT demand for midsize companies has remained strong for the past five months, moving from 95 for the second quarter up to 97 for the third quarter. Within the midsize market, the strongest current IT spending index is in financial and health services organizations. Midsize organizations also exhibited strong demand in all four IT sectors, especially in services and networking/telecom, as both sectors are above the 100 baseline for the third-quarter demand index.

Small companies have shown the greatest unwillingness to spend, dropping to 72 on the index in the third quarter, down from 79 in the second quarter. Gartner analysts said large companies also showed weakness quarter over quarter, but these businesses are not as tight on budgets as small companies. The current spending index for large enterprises slipped to 85, from 89 in the second quarter.

Gartner analysts said the fourth quarter continues to be the critical period. For a strong recovery to begin early in 2004, IT spending needs to be robust in the fourth quarter of 2003. "The (current period) is indicating potential market weakness among small and large enterprises, which are reluctant to spend at budgeted levels," Hankin said. "However, midsize organizations may be the economic vanguard that will stimulate spending throughout all sectors. We continue to expect that, overall, the fourth quarter will show expected gains as companies clear excess budgets to gear up for a stronger business environment in 2004. Failing this, the 2004 recovery is in jeopardy."

For more information on Gartner IT Watch, e-mail ITWatch@gartner.com or visit www.gartner.com/1_researchanalysis/ITwatch.jsp.

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