Preparing for a US slowdown, linked to growth elsewhere

Many of the people I’ve discussed with over the last week in New York stress the deep impact of an unfolding decelleration in the US economy. But what will be impact be on analyst relations?

Since many other major economies are in a pretty good condition, it’s easy to think from the outside that the US’ difficulties are focused in their real estate sector. However, it’s clear that many businesses expect that trend to deepen and broaden. Sharp retrenchment has started in a number of sectors. Recent announcements by UBS, Pfizer and Motorola suggest an accelerating trend.

The CFO survey, which generally predicts the economy by one quarter, now shows that capital spending is being scaled back by one third, while more CFOs are pessimistic about the US economy than are optimistic. The balance between pessimism and optimism about their economy is close to a five year low.

In the financial sector, this is also reflected in the declining dominance of ‘Wall Street’. The number of hedge funds in New York has fallen by a third in the same time as the number in London has quadruped. The CFP survey stresses a shortage of of skilled staff in the US: Some organisations here in the US struggle to overcome government restrictions on hiring overseas talent. For example, Deutsche Bank appointed a German born in Iraq to the number two role at its New York office, but was unable to get a visa for him.

The US is working to stimulate its financial sector. Commodity markets are weakened here (something which some investors see positively), and it’s probable that the government will lower interest rates to encourage investors to buy shares. However, US equities seems generally overvalued, and the ratio of risk to reward makes investment overseas much more appealing.

In contrast to the gloomy US picture, the CFO survey shows that European CFO are optimistic, and intend to increase staff numbers.

So, what does this mean for technology? Above all, it means the trend for US firms to obtain a growing share of their revenues from outside the US will continue. The CFO survey shows that anticipated growth in technology spending has fallen by 3% in the US over the last year, but risen by 1% in Europe. Asia remains the region in which technology spending will grow the most.

The implication of this is clear: AR needs to focus more on supporting sales in growth markets. In the mid-market and SMB sector, is also means focusing more on analysts who write in local languages, since few IT buyers in those segments outside the English-speaking countries prefer to use research written in English.

P.S. One fascinating observation: news magazines such as Time and The Economist often run different covers when their magazine discusses issues facing the US economy. That’s an interesting example of reacting to consumer preference. For example, Time’s U.S. edition carried a special report on the brain on January 29. Its international edition instead carries a special report on the global economy with the headline [shown above]: “LEND HIM A HAND! The U.S. needs help puling the world’s economy along”, with a cartoon showing a tortoise that wears an Uncle Sam top hat while attempting to pull a much larger planet Earth. The principal article explains how US GDP growth has been below the global average for each of the last several years, and has fallen in 2005 and 2004, to below Germany’s growth.