IT Sales Could Slow In Aftermath Of Katrina

A series of economic reports issued by the government this week show a robust IT market. But it's questionable whether those numbers can be sustained in the coming months because of the fallout from Hurricane Katrina.

With about a quarter of America's energy production tied to the region devastated by Katrina, including New Orleans, energy prices could soar, with oil reaching $100 a barrel. That worse-case scenario could bring the economy to near recession by year's end.

High energy prices would have a cascading effect on the economy. The high cost of gasoline and heating fuels could slow consumer spending. Fewer consumer dollars flowing to corporate coffers will force business to change purchasing plans, including what they spend on IT. Until this crisis, a number of research studies had forecast higher IT spending by business.

"If business profits are squeezed by higher energy costs, and businesses can't pass those higher costs on to consumers, the willingness to spend on investments, including IT, will disappear," says Nigel Gault, group managing director of the North American macroeconomics service at the economics consultancy Global Insight Inc.

Another factor, albeit a small one, is the impact of the halt of nearly all business economic activity in New Orleans and other locales obliterated or extensively damaged by the storm surges and flooding caused by Katrina. Businesses that don't operate don't buy IT wares. But those businesses represent a minute fraction of the entire national economy. New Orleans' population, for instance, is no more than 1.5% of the U.S. population. Damage estimates topping $25 billion equate to only 0.2% of the nation's economy, valued at $12 trillion.