CIO survey reveals confidence dip

They may be hiring and spending this quarter, but plenty of CIOs are losing sleep over the current U.S. economic confusion.

The current business climate has CIOs feeling optimistic about Q3, but they aren't yet ready to bank on good times ahead, according to a new Forrester Research Inc. survey. Interviews last month with 140 CIOs at North American companies led survey author Andrew Bartels to label the survey "Doubt About the Future Emerges."

"Spending plans for 2005 are still on track -- most companies expect to increase spending by moderate amounts -- but the outlook for 2006 is starting to get a little more uncertain," said Bartels, a vice president at Forrester.

Economic uncertainty has created a split in CIO expectations about future business conditions. Twenty percent of CIOs expect improved business conditions next year -- a greater percentage than last year -- while 11% expect slightly worse or much worse conditions. That steep drop was more than double any other change in expectations since the quarterly poll was begun in 2004.

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Reasons for concern include rising oil and gas prices, a declining dollar, a rising trade deficit, interest rates and general worry on Wall Street.

Still, the survey confirmed many earlier spending predictions: 77% of CIOs reported increased IT spending this year compared to last and 70% described business conditions as "strong" or "very strong." The average IT budget will grow by 3.7% for large organizations in 2005 and 4.8% for SMBs, according to the survey. Nine percent of companies reported a decrease in IT spending compared to last year.

"Overall, I don't think we're looking at an actual downturn in spending across the board," Bartels said. "Instead, it's a flat to downward growth rate."

The largest companies reported the most optimism; 94% of organizations with 5,000 or more employees expect no change or a positive change in the future. Future expectations were influenced more by sector than size, Bartels said. For example, financial services firms are beginning to feel gloomy about rising interest rates and insurance companies are growing cautious. Manufacturers are rebounding, while retailers are a mixed bag.

When asked about 2006 spending, about 65% of the CIOs said they plan on increasing budgets next year. Just 6% expect to have smaller budgets next year.

Bartels predicted smaller expenditures for computer hardware, software and other equipment. He said CIOs will focus on improving efficiencies and keeping costs down, spending more on maintenance than innovation.

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