U.S. Economy: Software Industry Macroeconomics

The following article is from Software Equity Group’s 2011 Q3 Software Equity Industry Report.  A complimentary copy of the quarterly report can be downloaded here: https://softwareequity.com/research_reports.aspx

We begin with a brief synopsis of U.S. Gross Domestic Product (GDP) performance in 3Q11 based upon the latest data available at this time. GDP is best defined as the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports.

In a Wall Street Journal survey of fifty six leading economists in September 2011, the average 3Q 2011 GDP growth rate was estimated to be 2.0%, a modest but encouraging improvement over Q2’s 1.3% growth and Q1’s barely discernable uptick of 0.4%.  While 2011’s anemic growth rates and recession predictions are worrisome, growth in Q3 GDP would mark the ninth consecutive quarter of economic expansion (Figure 1).  However, the prospect of actually achieving that 2% forecast is increasingly unlikely because of the pall hanging over the world’s financial markets from the European debt crisis, head-spinning stock market volatility, and other macro uncertainty. One in three economists surveyed by the Wall Street Journal now predict the U.S. economy will slip into recession during the next twelve months.

The Conference Board’s index of U.S. Leading Economic Indicators (LEI) rose only 0.3% in August, following a 0.6% increase in July and a 0.3% increase in June.  Those predicting an impending recession need only point to the dearth of negative economic trends. Only four of the Board’s ten LEI indicators were positive: Real money supply, interest rate spread, building permits and the index of supplier deliveries.  The negative contributors, beginning with the largest negative contributor, were stock prices, the index of consumer expectations, average weekly manufacturing hours, average weekly initial claims for unemployment insurance (inverted), manufacturers’ new orders for consumer goods and materials, and manufacturers’ new orders for nondefense capital goods.

The recent employment report, released by the U.S. Bureau of Labor Statistics, provided some reason for guarded optimism.  The U.S. economy added 103,000 workers in September, sharply  beating a Bloomberg News’ survey of economists which projected only 60,000 new workers. The U.S. unemployment rate refused to budge, holding steady at 9.1%.  Information services and healthcare accounted for most of Q3’s new jobs.  One economists surveyed by Bloomberg probably sums it up best when he said, “The economy isn’t doing well, but it didn’t lose the momentum that the markets feared.”

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