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Market Difficulties Ahead as Macroeconomic Market Indicator Falls: IDC FutureScan

By Sophia Mayengbam

IDC’s June FutureScan saw the first inkling of future market difficulties, as the macroeconomic portion of the Market Indicator figure dragged it down to 1065 in June from 1075 in May. Of the four major components in the two metrics – macroeconomics, vendor revenue expectations, line of business expectations, and CIO expectations – this is the only one that dropped, research firm IDC said in a report.

According to the survey after last month's congruence between its two indices, this month the two took off in different directions. Buyer Intent seems to mirror a current positive outlook for new IT initiatives Other research conducted by IDC indicates that the huge infrastructure upgrade cycle of 2005 is slowly giving way to new initiatives.

"Whether this is an anomaly or a true early warning, we don't know yet," said John Gantz, IDC's Chief Research Officer. "Buyer expectations and vendor revenue forecast are aligned, which is good, but late in May stock markets seemed to plummet on a single announcement of downturn in US consumer confidence. The question is, how fragile is the current booming U.S. economy?"

According to the report, the Buyer Intent indicator went up from 1075 to 1087, continuing a steady rise since its low right after Hurricane Katrina. In other research by IDC “Global Market Watch Survey”, users reported that last year's major infrastructure upgrade cycle was slowly being replaced by spending on new initiatives. Budgets seemed more stable than last year, when much of the funding was scheduled late in the year and contingent on company financial performance, IDC said.

Buyer Intent History (Source:IDC IT FutureScan, June 2006)

"We always worry about wild card events in the greater economy," said Gantz. "As we tell our analysts, there is a high probability of a low probability event taking place. Right now this could mean higher oil prices, the falling dollar, or dropping consumer confidence. In the future it could mean another rough hurricane season or more Bird Flu."

For this reason, noted Gantz, IDC tends to be conservative in its forecasts, which rely on thousands of inputs beyond customer sentiment, from IT supplier capacity and technology breakthroughs to channel and pricing dynamics, demographics, regulatory change, and myriad other forces on the market. At the moment, IDC's forecast for IT spending growth in the U.S. over the next 12 months is 5.6%.

In June's FutureScan, the actual Buyer Intent indicator rose from 1075 to 1087, while the market indicators fell from 1075 to 1065.

Gantz points out that any single measure of expected IT spending is insufficient for making a real forecast. IDC’s forecast is based on thousands of inputs beyond customer sentiment, from IT supplier capacity and technology breakthroughs to channel and pricing dynamics, demographics, regulatory change, and myriad other forces on the market.

FutureScan is a set of market metrics that measure supply and demand in the IT industry based on leading indicators and customer surveys. Values reflect expectations of future growth, with an index value of 1000 indicating zero growth and each additional 10 points representing roughly 1% of expected growth or contraction.

Buyer Intent reflects market demand for IT products and services over the next 12 months; the Market Indicators number combines input from economic and IT industry revenue forecasts.