Wednesday, January 28, 2009

Can IT lead the U.S. out of the recession?

The U.S. economy in deep recession which hasn't been seen since the great depression, and it been forecast by many to last at least until the end of 2010.  Can IT sector of the economy signal the recovery of the economy has a whole? I recently read a McKinsey Quarterly published a study that showing five downturn and recovery from recessions (1973-75, 1980-82, 1990, 2001) and the current recession recovery which began in Q3 2008. The sectors of the economy listed in the study were:

Consumer discretionary
Health care
Information technology
Telecommunications services

Each of the above sectors of the economy was given four sequences (Lead, Lag, In line, No effect) related to how they performed in the recovery phase.  According to McKinsey Quarterly history suggest that in three of the four most recent recessions, higher consumer discretionary and IT spending led the way to recovery and the current recession seems to be following a similar pattern. Looking at the IT sector companies earnings before interest, taxes, and amortization (EBITA) will be carefully watched by executives across all industries and market watchers.
As an avid follower of business news, I noticed business news focus on the earnings of Cisco (CSCO).  Many analyst view Cisco as a bellweather/ground hog of the tech industry and the economy as a whole thus it should indicate the start of a recovery.  So keep an eye on Cisco earning (EBITA) for the near future.

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