Debt reduction deadlock drags down corporate capital spending on software, more

The U.S. debt reduction deadlock in Congress is already taking a toll on how much companies are spending on property, buildings and equipment, including computer hardware and software, according to a new survey by ChangeWave Research.

Nearly one-quarter of 1,632 corporate buyers involved in software purchases reported their companies have reduced their capital spending budgets. That's a six-point increase compared to the previous quarter's survey. And the percentage of those reporting an increase in capital budgets continued to decline: to 6%, from 10% the prior quarter.

A summary of the findings is online. Bethesda, Md.-based ChangeWave is a division of The 451 Group.

ROUNDUP: Top 5 worries keeping IT pros up at night

Capital investment means spending money on new machinery, technology, buildings and other assets, sometimes broadened to include worker training and education. Such spending improves productivity and productive capacity, both of which are vital to long-term economic growth.

Not all of the reduced spending reported in the ChangeWave survey is attributable to the debt reduction maneuvering. More than two-thirds (69%) of respondents said the deadlock has not affected third quarter capital spending at their companies.

But survey participants were specifically asked whether the "debt reduction impasse ... caused your company to make any adjustments" to capital spending plans in the past quarter. Fully 16% said it had caused the capital budget "to be adjusted lower." Only 1% said the impasse had spurred an increase in capital spending.

ChangeWave argues that the 16% who have lowered capital spending show that the debt debate is "having a serious damaging impact, especially in the middle of a tenuous, post-recession recovery." In other words, these companies are being cautious about investing money for growth precisely at a time when such investment is desirable to sustain the recovery.

Debt rating firms such as Moody's and Standard & Poor's recently have warned that they will reduce the nation's triple-A credit rating because of the government's inability so far to come up with an effective program to reduce the record U.S. debt.

That would likely result in higher borrowing costs for the U.S. government. But because "so many other interest rates are pegged to the cost of [U.S.] Treasury debt, including business loans, mortgages, credit cards, and student loans, a downgrade could be felt by all Americans," according to a recent Wall Street Journal story.

Debt reduction is a separate issue from the current congressional and White House wrangle about raising the U.S. debt ceiling so the government can increase its borrowing.

ChangeWave has been tracking capital spending since at least January 2008. Respondents reporting lower capital budgets peaked at 46% in January 2009; that percentage had been declining steadily ever since until April 2010, when it began ticking upward again to 23% in October 2010. It dropped to 16% in January of this year, rose by a point in April and then jumped by six points in the most recent survey.

But reported increases in capital spending, for this whole period, have been much slower. In late 2008 and early 2009, just 4%-6% of respondents reported greater spending. That rose to only 14% in early 2010, and then rose to that point again in early 2011. It's been declining since.

Not all sectors are affected in the same way. Wireless network operators, globally, will double their capital spending over 2010 in one specific area: communication infrastructure equipment, according to a recent study by IHI iSuppli.

This segment will rise nearly 8% to $43.2 billion this year. In the U.S., wireless carriers are continuing their investment in 3G/3.5G technologies, and increasing spending on 4G technologies such as LTE.

But when the other capital spending categories are factored in, such as software and network upgrades, cables, plants and site procurement, the increase is far more modest, according to the IHS iSuppli report. Overall 2011 capital by the carriers will be $134.6 billion, up just 1.1% over last year.

John Cox covers wireless networking and mobile computing for Network World.

Twitter: http://twitter.com/johnwcoxnww

Email: john_cox@nww.com

Blog RSS feed: http://www.networkworld.com/community/blog/2989/feed

Read more about data center in Network World's Data Center section.

Tags business issuesThe 451 GroupNetworkinginfrastructure managementwirelesssoftwareCapitagovernmentindustry verticalsmanagementcorporate issuesdebt ceiling

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

John Cox

Network World

Comments

Comments are now closed.

Most Popular Reviews

Follow Us

Best Deals on GoodGearGuide

Shopping.com

Latest News Articles

Resources

GGG Evaluation Team

Kathy Cassidy

STYLISTIC Q702

First impression on unpacking the Q702 test unit was the solid feel and clean, minimalist styling.

Anthony Grifoni

STYLISTIC Q572

For work use, Microsoft Word and Excel programs pre-installed on the device are adequate for preparing short documents.

Steph Mundell

LIFEBOOK UH574

The Fujitsu LifeBook UH574 allowed for great mobility without being obnoxiously heavy or clunky. Its twelve hours of battery life did not disappoint.

Andrew Mitsi

STYLISTIC Q702

The screen was particularly good. It is bright and visible from most angles, however heat is an issue, particularly around the Windows button on the front, and on the back where the battery housing is located.

Simon Harriott

STYLISTIC Q702

My first impression after unboxing the Q702 is that it is a nice looking unit. Styling is somewhat minimalist but very effective. The tablet part, once detached, has a nice weight, and no buttons or switches are located in awkward or intrusive positions.

Latest Jobs

Shopping.com

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?