- October 26, 2023
- Posted by: Larry Walsh
- Category: Blogs
Economic growth is all about the consumers, and they’re not spending money with the tech industry.
By Larry Walsh
Despite all the economic uncertainty and talk of a coming recession, the U.S. GDP surged forward by 4.9% in the third quarter (July to September), according to the U.S. Department of Commerce in its preliminary report on economic activity.
The economic report comes as technology vendors and their channel partners are cutting budgets, laying off staff, and bracing for further declines in demand. The only bright spot on the tech economic landscape is cloud services, which continue to gain momentum as businesses source more infrastructure and applications through service providers.
So why does this feel terrible? In a word, it’s the consumer. The COVID-19 pandemic shifted many spending priorities. During the lockdowns, businesses enabled their employees to work from home or other remote locations. Businesses and consumers invested heavily in technology to enable their new work conditions. That created a boom during the peak pandemic period. In some tech categories, vendors built up huge back orders because they couldn’t produce enough product to meet customer demand.
Today, the situation is different. Tech spending is slack because businesses and consumers bought everything they need, and they’re now deferring spending on new products and services until they reach the end of their lifecycles. Many vendors tell Channelnomics that businesses are either delaying or canceling IT investments until they see a new generation of technology — products and services driven by artificial intelligence, for example.
But despite high inflation and interest rates, consumers continue to spend on non-technology items. Home sales jumped, and so did the sale of consumer durable goods. Despite automotive-worker strikes, consumers are buying cars too. And they’re spending on necessities, such as food and pharmaceuticals. They’re also spending down their savings. While disposable income increased by 1%, household savings decreased by nearly one-quarter.
Some of the increased GDP is attributable to inflation. If goods cost more, consumers are spending more for the same items. In constant dollars, the GDP looks somewhat more muted. However, consumers continue to empty their wallets despite the economic uncertainty.
How does this bode for the avoidance of a recession, or for a soft landing from recessionary conditions? According to The Conference Board, an economic think tank, the economic outlook among American businesses and executives is improving. Only 4% of U.S. CEOs believe we’re headed for a severe recession. Conversely, 80% of CEOs say the United States will have a limited, mild recession in 2024. Most of the sentiment around the economy continues to improve among consumers as well as they shed their fears of a coming recession.
In January 2024, Channelnomics will publish its annual Channel Forecast, in which we’ll share the results of our research on the economic and performance outlook for the channel. Our early expectations are that tech vendors and their partners will continue to feel pressure on sales and prices through the first half of 2024, with the market rebounding in late 2024 and into 2025.
Larry Walsh is the CEO, chief analyst, and founder of Channelnomics. He’s an expert on the development and execution of channel programs, disruptive sales models, and growth strategies for companies worldwide. Follow him on Twitter at @lmwalsh_CN.