Moving Forward in Today’s Economy

On March 5th, IBM’s Chief Economist Dr. Phil Swan was in Dallas to present to The Metroplex Technology Business Council. In Dr. Swan’s role, he evaluates economic data at the macro and microeconomic level, and advises the executive staff of IBM to assist their strategic decision making process.

As you might expect, Dr. Swan’s presentation contained a mix of news about the economic recovery, and specifically some interesting data on Information Technology’s contribution to the recovery. Some of Dr. Swan’s observations include:

• On a positive note, from 1995 to 2008 the U.S. utilized Information Technology to increase productivity growth better than any other country. Better than Japan, the European Union or the OECD. In fact between 2001 to 2008, Dr. Swan attributed 60% of U.S. productivity increase to Information Technology usage.

• In 1980 total Government Debt as a share of GDP was 37%. In Q3 of 2009, total Government Debt as a share of GDP was 69.2%. This current debt level severely constrains both Government and private industry investments in areas that could contribute to growth in a positive manner.

• Between Dec. 2007 to Q4 of 2009, the number of unemployed increased by 7.6 million, the under employed increased by 5.6 million, for a total increase of 13.2 million. Over 7.5 million jobs would have to be created to bring unemployment back down to 5%. The best year ever for net new jobs creation was 1984 in which 4.2 million new jobs were created. So what does this mean? It would take 2 years of unprecedented job growth to create the 7.5 million needed jobs to reduce unemployment back to 5%

• A real time measurement of the health of the economy is the Purchasing Managers Manufacturing Index. From second half of 2008 to Jan / Feb 2010, the index increased from 42 to 58.4 in the U.S. Any number greater than 50 is positive news for the economy although we would like to see an even higher number than the 58.4.

• Increasing corporate profits bode well for rising business capital outlays. The global inventory correction (I.e. moving from limited or a no stock inventory) is turning into production gains due to the need to replenish inventory levels. This production gain is a positive influence on the economic recovery.

So what was the final message? Dr. Swan was somewhat optimistic that the economic recovery will continue with a positive trajectory. The GDP recovery however will likely proceed at a much slower rate than the past decade, and most likely at an average of between 2.0 – 2.5% year over year growth.

Posted by Wayne Rampey, Vice President, The InSource Group